[OPE-L:106] [OPE-L:342] Re: working-class savings

Ajit Sinha (ecas@cc.newcastle.edu.au)
Wed, 18 Nov 1998 14:13:40 +1100

At 21:27 17/11/98 -0500, Jerry Levey wrote:
>On the one hand, the whole issue of working-class savings seems to me to
>be underdeveloped and largely unexplored in Marxist literature (perhaps
>due to the belief by some Marxists that workers are paid a subsistence
>wage and workers' savings is assumed to = -0-). Does anyone know of any
>attempts by Marxists to incorporate savings by the working-class into any
>theoretical models?

I wrote something around this topic in a paper which is reproduced below.
Everything below the first paragraph will not appear in print because it
was developed to answer a referee's comment, and is too much of an add on.
The basic point was also made in my xritique of 'new solution' paper in
RRPE, Sept. 1997. Hope this gets the discussion going. Cheers, ajit sinha

It is very important for Marx to have a theory of wages, so that the
surplus labor-time could be independently determined prior to the
determination of prices. Marx held that the life style of a working class
was determined by the long term socio-historical forces (see Marx 1976).
Sraffa (1960) showed ambivalence about taking the real wages as determined
from outside the price system on the ground that wages may contain part of
'surplus'. It should be, however, noted that in Marx's analysis the value
of labor-power is determined on the basis of the value needed to produce
the working class. The value of labor power is determined on the basis of
the life-cycle of the workers and their families. The real wage rate is
then derived by taking into account the length of the working day as well
as the working life and life expectancy of an average worker, and the
average intensity of work, etc. All these variables are determined in the
historical class struggle. Marx's point is not that an individual worker
cannot save at any given point in time. His basic point is that for the
working class as a whole there cannot be persistent positive saving, i.e.
the working class cannot go on bequeathing property from one generation to
another. If the working class as a whole could go on saving persistently,
then, in the long run, they would not remain the propertyless proletariats,
and the whole basis of the capitalist mode of production would collapse.
Thus, the assumption that workers consume all the wages is a sound
assumption in Marx's theoretical system.

In the post-Keynesian literature, it is generally assumed that workers do
save and have some property income, since they lend their savings to
capitalists on interest. Though it is well known that the conditions for
the existence of two class society of workers and capitalists in a steady
state growth models, a la Kaldor (1970 [1955-56]), are quite stringent (see
Kurz and Salvadori, 1995, pp. 475ff. for a recent restatement of such
conditions), it however, is not impossible. This seems to contradict my
claim above about working class saving. I shall, however, argue that the
conditions required for persistent saving on the part of the working class
must necessarily contradict some of Marx's important theoretical positions.

Let us suppose:

Workers' total income = W + Pw; where W is the total wage income and Pw is
the workers' total property income.

Capitalists total income = Pc; capitalists have only property income.

Assume steady state growth. Then,

Sw(W + Pw) = gKw (1);

where Sw is workers' propensity to save, Kw is the total capital stock
owned by the workers, and g is the rate of growth of workers' capital
stock. Similarly,

ScPc = gKc (2);

where Sc is capitalists' propensity to save, and Kc is the total capital
stock owned by the capitalists.

Total capital stock in the economy K = (Kc + Kw). Assume rate of interest i
= the rate of profit r. Then,

Pc = rKc (3); and

Pw = rKw (4).

A simple manipulation of equation (1) and (4) gives us

W/Pw = (g - rSw)/rSw (5); and from equation (2) and (3) we get

r = g/Sc (6); by inserting the value of r from
equation (6) into equation (5), we get

W/Pw = (Sc - Sw)/Sw (7).

Equation (7) brings to relief the usual post-Keynesian assumption that Sw <
Sc. As Sw approaches Sc, W/Pw approaches zero, implying that W approaches
zero and the model converges to a one class society of only capitalists-an

Now the relevant question for us to investigate is, under what conditions
W/Pw will remain positive but finite. It is obvious that the ratio W/Pw
will remain constant if both W and Pw were growing at the same rate. This
will happen if W was growing at the rate of g, since Pw is growing at the
rate of g. However, given the technology and the wage rate, W will grow at
the rate of g if and only if employment and population were growing at the
rate of g as well. But this could only be a freak of accident. Most likely
either the rate of growth of population gp will be higher or lower than g.

Let us first take the case of gp > g:

Given the technology, this would amount to a continuous rise in the rate of
unemployment, which would eventually undermine the system. Thus, for the
long term survival of the system g must rise to equal gp (taking gp to be
exogenous for the time being). This could happen on two counts. (1)
Increasing unemployment could lead to a fall in the real wage rate and a
consequent rise in the rate of profits, which would lead to a rise in g.
However, if the wage rate is close to 'minimum subsistence' this rout will
come to a dead end quickly. (2) Increasing labor productivity due to
technical change could lead to a rise in the rate of profits and thus a
rise in g (see equation 5). We should note, however, that technical change
is not an endogenous factor in this case, since unemployment is a political
problem and not an economic problem for the system.

Now, let us take the case of gp < g:

This is more relevant to Marx's case. In this case the system will hit the
full employment ceiling if technology remains constant. Therefore, the
system must generate labor-saving technical change at the rate of m such
that gp + m = g. We assume that the change in technology leaves the rate of
profits unchanged. Now, since gp < g, Kw per capita will rise, which would
lead to a rise in (W + Pw) per capita, i.e. workers' per capita total
income will rise. If we assume that the standard of living of the working
class remains constant, then increase in income must turn into savings
leading to a continuous rise in Sw towards Sc and eventual collapse of the
system. Therefore, the system's long term viability is possible if and only
if the workers' standard of living continuously rises-contrary to Marx's
'absolute immiseration thesis' (see Sinha 1998). But more importantly,
since the earning of the wage income W is associated with 'alienation' and
subordination of one's self to the dictates of the capitalists and his/her
agents, it is not unreasonable to expect that workers would press for
shorter and shorter working hours when Pw is growing. This would lead to a
falling W/Pw ratio and a rising Sw, implying an eventual collapse of the

What if gp, however, was endogenous and not exogenous to the system? In
that case, one could argue that when gp < g, the per capita income of the
workers rises leading to a rise in gp towards g; and similarly a fall in gp
towards g when gp > g. But this is nothing but Malthusian theory of
population-a theory Marx had categorically rejected (see Sinha 1998 for my
critique of Hollander on this issue).

Thus it seems that the case of gp = g is the only compatible case with the
post-Keynesian scenario, which could only be a freaky accident. Otherwise,
it seems to need the crutches of Malthusian theory of population to walk.
In the light of the above argument we could conclude that Marx's assumption
that working class as a whole does not save is robust.

ajit sinha