Subject: [OPE-L:1877] Re: Marx's Wage theory
From: Patrick L. Mason (firstname.lastname@example.org)
Date: Thu Dec 09 1999 - 10:56:47 EST
Ajit, Paul, and fellow OPE-Lers:
1. The discussion on real wages on economic growth reminds me of two very
good papers that someday should be integrated into a discussion of labor
market dynamics. Anwar Shaikh and David Gordon both wrote papers on the
relationship trend and cycle in economic growth. Anwar's paper is in a book
edited by Willi Semmler and I've totally forgotten where David's paper is
2. Marx's FROP argument doesn't mean that profit falls forever. The profit
rate falls until a crisis occurs. During the depression, profitability is
eventually restored. It may take the economy a long time to pull out of a
deep depression, but it's the very nature of depressions to restore
profitability. It's during this period of restoration that real wages fall.
Real wages may be rising during the period preceding the onset of a crisis.
Afterall, if real wages are falling this will lead to an increase in the
rate exploitation, but the rate of exploitation is already rising over time
because of technological change. So, with a falling wage rate and
technological progress a crisis why should the rate of profit decline?
The diagram below plots what I have in mind.
Profit * *
* * Time
t0 t1 t2 t3
>From t0 to t1 the rate of profit falls. In Marx's theory, this is because
the organic composition of capital is growing faster than the rate of
exploitation. The rate of exploitation is increasing because of
technological change. It is entirely possible that the real wage rate is
rising during this period. Indeed, I'd bet that it is rising. Consider, for
example, the US economy between 1945 and 1973: real wages rose, the rate of
profit declined, and there was dramatic technical change.
>From t1 to t2 the economy is in crisis. T1 may be 1929 and t2 may be
December 7, 1941 (or, alternatively, the date of the invasion of Poland in
1939). Considering more recent history, t1 is surely 1974-75 and t2 is
probably 1992. During the period between t1 and t2 real wages are
definitely falling, especially for non-supervisory workers. Between t1 and
t2 technological change is also underway. In fact, during every year
between t1 and t2 labor saving technological change is taking place but I
cannot say whether such change is faster or slower during a particular time
period than some other time period. (When will historians of economic
thought and economic theorists give us empirical guys a theory of
technological change)? Real wages decline or stagnant during t1-t2, but
they begin to rise again after t2.
At t3, capital struggles to restore profitability and real wages fall. The
bargaining power of labor is destroyed because the economy is in deep
So, my answer to Paul C's question, "Why should technical change have any
bearing on the aggregate level of employment in the economy in the long
run?" is straightforward. Technical change has no impact on aggregate
employment in the long run.
This is especially true if we are considering a period of 7 or 8 business
cycles. For example, Henry Ford's mass production of the automobile
represents technical change of the highest order. It destroyed nearly
everything associated with the industrial and agricultural use of horses.
It eliminated horses and carriages as transportation. It eventually wiped
out much of the American railroads. At the same time, automobile production
also "created" the steel, glass, rubber, petroleum and petrochemical, and
robotics industries. (General motors was and may still be the largest
producers of robots in America).
Gotta go now.
Peace, Patrick l mason
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