[OPE-L:4870] Re: determination of real wages

Duncan K. Foley (dkf2@columbia.edu)
Fri, 25 Apr 1997 12:43:24 -0700 (PDT)

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On Ajit's OPE-L:4843:


>>1. The problem of the evolution of real wages in relation to labor
>>productivity seems to me to be an immensely important issue to understand
>>the long-run development of capitalist economies. The tendency for real
>>wages to rise roughly in line with labor productivity over long periods is
>>a striking empirical feature of capital accumulation, drives the processes
>>of technical change that lead to the falling rate of profit and relative
>>surplus value in Marx's account, and gives rise to the type of capitalist
>>society we live in. If real wages had remained stagnant, societies would be
>>unimaginably different.
>I mostly agree with you on this. I do think that in the 20th century the
>real wages in the first world countries have increased, and in a long-run
>framework are corelated to the improvement in labor productivity. I'm,
>however, not sure to what extent the rise in real wages "drives the
>processes of technical change that lead to the falling rate of profit and
>relative surplus value in Marx's account." My general impression is that
>Marx expects technical change to mostly take place during the slump period
>rather than the boom period, and , of course, wages would be expected to
>rise during the boom rather than the slump periods. For example, Marx
>writes: "The fall in prices and the competitive struggle, on the otherhand,
>impel each capitalist to reduce the individual value of his total product
>below its general value by employing new machinery, new and improved methods
>of labour and new forms of combinations. ... The stagnation in production
>that has intervened prepares the ground for a later expansion of
>production-- within the capitalist limits." (Capital III, ch. 15, p. 363,
>Penguin). And I don't think that it is empirically an implausable hypothesis
>either. It appears that the major recent technical change in the US auto
>industry and introduction of computer driven technology in other industries
>in the US and Canada took place during the last recession when wages were
>anything but rising.

It might help here to distinguish between the "real wage", that is, money
wages divided by an index of the prices of wage goods actually consumed by
workers, and the "product wage", money wages divided by the price of the
products firms produce. In a slump most product prices (especially in
non-wage goods industries) fall more sharply than money wages, so that the
"product wage" actually rises. This is the type of scenario I had in mind
in suggesting that high and rising wages drive technical change. I agree
with you on the importance of periods of crisis (either economy-wide or in
particular industries) in accelerating the competitive struggle and
technical change.

It's striking, incidentally, that the stagnation or decline of the "real
wage" in the U.S. since 1975 has not been paralleled by a stagnation of the
"product wage", which has continued to rise roughly in line with labor
productivity. This also raises questions about the widely held belief that
the fall in real wages in the U.S. has prevented unemployment from rising
as much as in Europe, since it is presumably the product wage that is the
relevant factor for the cost of labor.


>>3. Much of Marx's discourse implies a rise in the standard of living of
>>workers through the mechanism of the cheapening of wage goods with a
>>constant or slowly falling value of labor-power. This issue is most acute
>>in his discussion of the falling rate of profit, which makes perfect sense
>>if one assumes a constant or moderately falling value of labor-power and
>>doesn't work if one assumes a constant real wage in use-value terms. In
>>fact, there's a strong case to be made that the technical progressiveness
>>of capitalism depends crucially on high and rising real wages, which is the
>>most powerful incentive to labor-saving innovation. On the other hand, Marx
>>seems reluctant to admit openly that capitalist development might raise the
>>standard of living of the proletariat, despite the fact that it did do so
>>in England during the latter part of Marx's life (the situation up to 1850
>>is a good deal more controversial.)
>I don't find this in Marx's writings. The senario that real wages might be
>rising due to increasing productivity is vertually absent in his discussion
>on the falling rate of profit.

I agree with you that Marx does not see any causal connection leading from
increases in productivity to rising wages.

>On the other hand, you come across statements
>like: "The tendential fall in the rate of profit is linked with a tendential
>rise in the rate of surplus value, i.e. in the level of exploitation of
>OF PROFIT IN TERMS OF A RISE IN WAGE RATES, even though this too may be an
>exceptional case." (Ibid, p. 347, emphasis added).

I wish Marx hadn't put this point in this way, since it's led to all kinds
of misunderstanding of his ideas about the evolution of technology and the
rate of profit in capitalist development. I think what he meant was that
the driving force in the falling rate of profit was a rising composition of
capital, not rising wages with a constant composition of capital. I think
he viewed changes in the rate of exploitation as a possibly mitigating
factor in the fall in the profit rate. However, we know from the Okishio
analysis that the composition of capital won't rise unless there's some
pressure from rising real wages. The problem I have with this passage is
that the first sentence refers to the rate of surplus value (in my way of
thinking, the value of labor-power.) When there is labor-saving and
capital-using technical change it is quite possible for the rate of surplus
value to rise even while wage rates are rising, if wage rates rise less
rapidly than the productivity of labor. But in the second sentence he
pivots from the "rate of surplus value" to "a rise in wage rates". This is
exactly the ambivalence that I'm referring to above.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu