Sunday, March 27, 2016

Marx on Wage Determination and the Classical Economists

In Chapter 19 of volume 1 of Capital Marx quotes the Classical economics on wage determination:
“Classical political economy borrowed from every-day life the category ‘price of labour’ without further criticism, and then simply asked the question, how is this price determined? It soon recognized that the change in the relations of demand and supply explained in regard to the price of labour, as of all other commodities, nothing except its changes, i.e., the oscillations of the market price above or below a certain mean. If demand and supply balance, the oscillation of prices ceases, all other conditions remaining the same. But then demand and supply also cease to explain anything. The price of labour, at the moment when demand and supply are in equilibrium, is its natural price, determined independently of the relation of demand and supply. And how this price is determined, is just the question. Or a larger period of oscillations in the market-price is taken, e.g., a year, and they are found to cancel one the other, leaving a mean average quantity, a relatively constant magnitude. This had naturally to be determined otherwise than by its own compensating variations. This price which always finally predominates over the accidental market-prices of labour and regulates them, this ‘necessary price’ (physiocrats) or ‘natural price’ of labour (Adam Smith) can, as with all other commodities, be nothing else than its value expressed in money. In this way political economy expected to penetrate athwart the accidental prices of labour, to the value of labour. As with other commodities, this value was determined by the cost of production. But what is the cost of production—of the labourer, i.e., the cost of producing or reproducing the labourer himself? This question unconsciously substituted itself in political economy for the original one; for the search after the cost of production of labour as such turned in a circle and never left the spot. What economists therefore call value of labour, is in fact the value of labour-power, as it exists in the personality of the labourer, which is as different from its function, labour, as a machine is from the work it performs. Occupied with the difference between the market-price of labour and its-so-called value, with the relation of this value to the rate of profit, and to the values of the commodities produced by means of labour, &c., they never discovered that the course of the analysis had led not only from the market prices of labour to its presumed value, but had led to the resolution of this value of labour itself into the value of labour-power.” (Marx 1906: 589–590).
Marx essentially endorses in this chapter the view that wages fluctuate above and below an equilibrium value: the “necessary price” or “natural price” of labour.

But what Marx does say is that the Classical economists did not really understand the real nature of the “natural price”: they did not understand that this was the value of the maintenance and reproduction of labour-power, a subsistence wage.

As we know from other passages, Marx also rejected the Malthusian population theory, but even so the important point remains: Marx sees capitalism as driving wages towards an equilibrium subsistence wage, the value of the maintenance and reproduction of labour-power (sometimes with a moral and historical element).

Supply and demand might cause wage rates to temporarily go above or below this level, but the tendency of capitalism is to drive the real wage back to the subsistence level.

There are powerful forces driving the real wage back to the subsistence level as follows:
(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 (see Chapter 12 of volume 1 of Capital);

(3) continuous technological unemployment produces a large and growing reserve army of labour (see Chapter 25 of volume 1 of Capital), and this reserve army keeps the real wage in check and keeps wages down.
M. C. Howard and John King have a good discussion of Marx’s wage theory as follows:
“The value of labour power [sc. for Marx], like the value of any other commodity, is given by the quantity of labour required, under the prevailing technical and social conditions, for its reproduction. The labour time needed to produce and reproduce human labour power is simply that required to keep the worker, and where relevant also the worker’s family, alive and capable of performing labour. In this sense Marx, like Ricardo had a subsistence theory of wages. He was, however, even more careful to qualify it. The value of labour power has both a natural and a ‘historical and moral element’ (Capital 1:171), and depends in part on social norms. But, like Ricardo, Marx treated this element of the wage as given in the short run, so that the concept of a fixed subsistence wage retains its validity within any given historical period.

Marx broke with Ricardo on the question of the mechanism by which real wages are maintained, in long-run equilibrium, at their subsistence level. …. Furthermore, as we have seen, Malthus’s theory of population was rejected by Marx. Instead he concentrated upon a factor specific to the process of capitalist accumulation: the industrial reserve army of the unemployed, which creates competition among workers and prevents wages from rising above the value of their labour power. This is a form of ‘overpopulation’, but it has little in common with the classical use of that concept.” (Howard and King 1985: 93).

“The existence of the industrial reserve army of the unemployed means that competition between workers for jobs prevents real wages from rising, in the long run, above the subsistence level which reflects the value of labour power.” (Howard and King 1985: 94).
So, for Marx, this rules out a long-run real wage rising and rising above subsistence level in capitalism, and that is also absolutely in line with this theory of surplus value, as I have argued here.

Howard, Michael Charles and John Edward King. 1985. The Political Economy of Marx (2nd edn.). Longman, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.


  1. If the market price of labor explains nothing except its oscillations, then it is entirely possible that there is nothing to explain. There is no intrinsic relation between the price of labor and production or subsistence, just as there is no intrinsic relation between the price of commodities and their extraction costs.

    Indeed, the three forces you cite are sufficient to explain labor cost movements, without reference to any intrinsic cost. There is a bottom, of course, where labor simply withdraws its efforts.

    All the Herculean effort to objectively determine a natural wage or subsistence wage are simply wasted.

    1. the basic subsistence wage is the cost of 'producing and reproducing' the worker. This means the cost of keeping them alive and able to work, and the cost of producing their replacement, I.e. Their children. It also includes the cost of training workers and providing the things they might need to be able to work, such as transportation, housing, etc. That's the subsistence wage. Without that, you don't have any workers.

  2. Marx, capital, chapter 25:

    “Under the conditions of accumulation supposed thus far, which conditions are those most favourable to the labourers, their relation of dependence upon capital takes on a form endurable or, as Eden says: “easy and liberal.” Instead of becoming more intensive with the growth of capital, this relation of dependence only becomes more extensive, i.e., the sphere of capital’s exploitation and rule merely extends with its own dimensions and the number of its subjects. A larger part of their own surplus-product, always increasing and continually transformed into additional capital, comes back to them in the shape of means of payment, so that they can extend the circle of their enjoyments; can make some additions to their consumption-fund of clothes, furniture, &c., and can lay by small reserve funds of money. But just as little as better clothing, food, and treatment, and a larger peculium, do away with the exploitation of the slave, so little do they set aside that of the wage worker. A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage worker has already forged for himself, allow of a relaxation of the tension of it. In the controversies on this subject the chief fact has generally been overlooked, viz., the differentia specifica [defining characteristic] of capitalistic production. Labour power is sold today, not with a view of satisfying, by its service or by its product, the personal needs of the buyer. His aim is augmentation of his capital, production of commodities containing more labour than he pays for, containing therefore a portion of value that costs him nothing, and that is nevertheless realised when the commodities are sold. Production of surplus-value is the absolute law of this mode of production.

    (part 1)

  3. (part 2)

    Labour power is only saleable so far as it preserves the means of production in their capacity of capital, reproduces its own value as capital, and yields in unpaid labour a source of additional capital. The conditions of its sale, whether more or less favourable to the labourer, include therefore the necessity of its constant re-selling, and the constantly extended reproduction of all wealth in the shape of capital. Wages, as we have seen, by their very nature, always imply the performance of a certain quantity of unpaid labour on the part of the labourer. Altogether, irrespective of the case of a rise of wages with a falling price of labour, &c., such an increase only means at best a quantitative diminution of the unpaid labour that the worker has to supply. This diminution can never reach the point at which it would threaten the system itself. Apart from violent conflicts as to the rate of wages (and Adam Smith has already shown that in such a conflict, taken on the whole, the master is always master), a rise in the price of labour resulting from accumulation of capital implies the following alternative:
    Either the price of labour keeps on rising, because its rise does not interfere with the progress of accumulation. In this there is nothing wonderful, for, says Adam Smith, “after these (profits) are diminished, stock may not only continue to increase, but to increase much faster than before.... A great stock, though with small profits, generally increases faster than a small stock with great profits.” (l. c., ii, p. 189.) In this case it is evident that a diminution in the unpaid labour in no way interferes with the extension of the domain of capital. — Or, on the other hand, accumulation slackens in consequence of the rise in the price of labour, because the stimulus of gain is blunted. The rate of accumulation lessens; but with its lessening, the primary cause of that lessening vanishes, i.e., the disproportion between capital and exploitable labour power. The mechanism of the process of capitalist production removes the very obstacles that it temporarily creates. The price of labour falls again to a level corresponding with the needs of the self-expansion of capital, whether the level be below, the same as, or above the one which was normal before the rise of wages took place.

  4. (part 3)

    We see thus: In the first case, it is not the diminished rate either of the absolute, or of the proportional, increase in labour power, or labouring population, which causes capital to be in excess, but conversely the excess of capital that makes exploitable labour power insufficient. In the second case, it is not the increased rate either of the absolute, or of the proportional, increase in labour power, or labouring population, that makes capital insufficient; but, conversely, the relative diminution of capital that causes the exploitable labour power, or rather its price, to be in excess. It is these absolute movements of the accumulation of capital which are reflected as relative movements of the mass of exploitable labour power, and therefore seem produced by the latter’s own independent movement. To put it mathematically: the rate of accumulation is the independent, not the dependent, variable; the rate of wages, the dependent, not the independent, variable. Thus, when the industrial cycle is in the phase of crisis, a general fall in the price of commodities is expressed as a rise in the value of money, and, in the phase of prosperity, a general rise in the price of commodities, as a fall in the value of money. The so-called currency school concludes from this that with high prices too much, with low prices too little money is in circulation. Their ignorance and complete misunderstanding of facts are worthily paralleled by the economists, who interpret the above phenomena of accumulation by saying that there are now too few, now too many wage labourers.
    The law of capitalist production, that is at the bottom of the pretended “natural law of population,” reduces itself simply to this: The correlation between accumulation of capital and rate of wages is nothing else than the correlation between the unpaid labour transformed into capital, and the additional paid labour necessary for the setting in motion of this additional capital. It is therefore in no way a relation between two magnitudes, independent one of the other: on the one hand, the magnitude of the capital; on the other, the number of the labouring population; it is rather, at bottom, only the relation between the unpaid and the paid labour of the same labouring population. If the quantity of unpaid labour supplied by the working class, and accumulated by the capitalist class, increases so rapidly that its conversion into capital requires an extraordinary addition of paid labour, then wages rise, and, all other circumstances remaining equal, the unpaid labour diminishes in proportion. But as soon as this diminution touches the point at which the surplus labour that nourishes capital is no longer supplied in normal quantity, a reaction sets in: a smaller part of revenue is capitalised, accumulation lags, and the movement of rise in wages receives a check. The rise of wages therefore is confined within limits that not only leave intact the foundations of the capitalistic system, but also secure its reproduction on a progressive scale. The law of capitalistic accumulation, metamorphosed by economists into pretended law of Nature, in reality merely states that the very nature of accumulation excludes every diminution in the degree of exploitation of labour, and every rise in the price of labour, which could seriously imperil the continual reproduction, on an ever-enlarging scale, of the capitalistic relation. It cannot be otherwise in a mode of production in which the labourer exists to satisfy the needs of self-expansion of existing values, instead of, on the contrary, material wealth existing to satisfy the needs of development on the part of the labourer. As, in religion, man is governed by the products of his own brain, so in capitalistic production, he is governed by the products of his own hand.”