Wage Labour and Capital & Value, Price and Profit

Before diving into the text, Marx makes a brief introduction by way of two preliminary remarks: one about the epidemic of strikes and general enthusiasm for a rise in wages, and the other about Weston’s proposed and misinformed ideas. Both suggest he feels the necessity for unified and theoretically well-informed leadership.

Marx begins by suggesting that Weston’s argument that a rise in wages would not improve the material conditions of workers relies on two premises: first, that the amount of national production is fixed; and second, that the amount of real wages—wages measured in the quantity of commodities they can be exchanged for—is also fixed. Marx states that this first premise is quite clearly false, as the value and mass of production increase year after year, as does the productive powers of the national labor force and the total amount of money required to be in circulation to facilitate the increase in production.

However, Marx grants that even if the amount of production was fixed, then Weston’s conclusion that wages cannot increase is still false, because even with a fixed number (Marx gives the example of 8), the limits of that number do not preclude it from being divided in different ratios. For example, if profits are 6 and wages are 2, those numbers could be inverted—or even changed to 4 and 4—and the total still remains 8. Thus, a fixed amount of production does not necessitate fixed wages.

Marx concludes the chapter by pointing out the logical contradiction in the one-sidedness of Weston’s argument: If wages cannot be raised without a knock-on effect, such as an increase in the price of essential commodities to offset the profit lost by an increase in wages—which Weston appears to accept as just—then a reaction to the lowering of wages, such as workers organizing to fight it, must be just as well. Marx posits that since any action against the lowering wages is an action for increasing them, then Weston must concede that in certain circumstances, men are right to fight for an increase in wages; if not, he is arguing for a framework in which wages cannot rise, but can be lowered by capitalists whenever they have the will to do so.

Marx restates Weston’s general premise that a rise in wages would lead to a rise in the price of necessities, but questions where the price of wages comes from under this framework. If they are fixed, as Weston claims, then there must be some law that governs this price, otherwise it would imply prices are determined by the greed and avarice of the capitalist class, who always want as much profit as possible.

Marx then attempts to discover this law and suggests that if all else remains equal and wages are the only change, then supply and demand would explain an increase in the price of goods, since the increase in wages would mean the working class has more money to spend, increasing demand. However, this rationale would only hold true for necessities, since this is what the working class must spend their wages on. Capitalists that produce other goods, such as luxury items, would see their prices lower because there would be a lower demand for their goods, since they are purchased by the capitalist class, and the capitalist class has seen a loss of profit (and their purchasing power) due to the increase in wages.

This will ultimately lead to shifts in the market, as capitalists move out of the now less-profitable luxury industries and into the more profitable industries for necessities. This influx of production and competition will then cause prices of necessities to revert to their average price from before the increase in wages. Overall, the only changes that would have occurred due to the rise in wages would be a change in the composition of the national product (more necessities and fewer luxuries) and a general fall in the rate of profit for capitalists.

To support his hypothesis, Marx uses two historical examples: The rise in wages in Great Britain between 1849 and 1859 due to the Ten Hours Bill, and the rise of wages for agricultural workers during the same period. Bourgeois economists predicted this mandatory increase in wages would lead to economic ruin, since the 12th hour of work was where they earned profit. The opposite turned out to be true: Despite fewer working hours, productivity increased, markets expanded, and the general price of commodities decreased. Thus, basic observation of these trends undercuts Weston’s premise that wages and productivity are fixed.

Here, Marx tackles Weston’s second (and related) assertion that the amount of currency in circulation is also fixed. He first explains that the amount of money in circulation is not directly connected to wages, because a more efficient and widespread banking system, such as they have in England, requires less money in circulation than a less-efficient one. He suggests, for example, that in England, 52 pounds can be paid by a single Sovereign every week as it is passed from person to person: The factory operative pays their shopkeeper, who sends the money to the bank, who returns them to a manufacturer, who then pays them as wages to another worker, etc. However, in other places in Europe, where wages are lower and banks are less centralized, more money is required because it is circulated less quickly.

Marx uses two historical examples to disprove the idea that currency is fixed. First, he looks at the flourishing cotton industry between 1858 and 1860, where wages peaked. After this boom, wages eventually fell by 75%. Despite this, the price of wheat rose, and the amount of money in circulation increased, too. He then compares the railroad industry in 1842 and 1862, observing that despite a huge increase in the amount of capital paid for shares, loans, wages, etc., the amount of currency in circulation remained nearly the same. He also notes that, generally, the pattern holds that as the value of transactions and commodities increases, there is a progressive reduction of currency.

Weston’s fixed model cannot explain these phenomena, and Marx concludes it is because, like the amount of national product, currency is not fixed. Things like the number of banknotes issued, the number of payments realized without actual money, the amount of coin currency in circulation versus in reserve, and the amount of money sent abroad all vary daily, making any argument built on the notion of fixed currency fundamentally erroneous.

One of the biggest obstacles facing anyone arguing that wages are too high or too low, argues Marx, is that such a comparison requires a standard to be measured against. Without it, such comparisons are meaningless, similar to trying to suggest a temperature is high or low without knowing the boiling and freezing point.

One popular explanation for the cost of wages is that they adhere to the laws of supply and demand. However, this would not work for Weston, for two reasons. First, it would mean that wages would rise when demand overshot supply, and fall in the inverse, which is already a problem for Weston, who claims wages are fixed. Second, supply and demand only regulate fluctuations in market prices—they can explain why the price of a commodity (including labor) is above or below its value, but not account for value itself. This becomes evident when supply and demand equalize and cancel one another out. When they are equal, the market price of a commodity coincides with its real value, which necessitates some way to measure that value, and subsequently, wages. Marx tackles this issue throughout the remainder of the text.

In this final chapter directly refuting Weston, Marx argues against the idea that wages determine prices. He suggests he could prove this by examining different commodities in different countries, which reveals that on average, high-priced labor produces low-priced commodities, and low-priced labor produces high-priced commodities. While this wouldn’t prove that the price of commodities is caused by the associated price of labor, it does prove that price isn’t determined by wages.

However, this is superfluous, Marx suggests, because the argument that price is determined by wages is based on tautological or circular reasoning. To say that the price of commodities is determined by wages is to say it is determined by the value of labor. However, in Weston’s view, wages could not be raised without an increase in the price of commodities upon which wages are spent, rendering the increase in wages pointless, which implies the value of labor is the value of the commodities it can be exchanged for. Thus, this line of thinking gets stuck in a vicious cycle where the value of commodities is determined by wages, and the value of wages is determined by the value of commodities. This idea that “value is determined by value” (43) does nothing to clarify the actual source of real value and renders Weston’s arguments meaningless.

Satisfied that he has adequately contested Weston’s arguments, Marx turns his attention to the broad question of value and begins to explain how the value of commodities is determined. He suggests that while the value of a given commodity may appear to be a relative thing, since the value of commodities is often expressed in relation to another commodity, the fact they retain their value regardless of the other commodity suggests value lies somewhere outside of exchange. For example, a quarter of wheat is worth the same whether expressed as silk, gold, or anything else.

According to Marx, the one thing that all commodities have in common is social labor. He specifies social labor because the thing that makes a commodity a commodity is that it is produced to satisfy a social want as opposed to the immediate, individual use by the producer. It is subordinated to the division of labor within society; it is produced by and is an integral part of the broader social system of production. Thus, the value of a commodity comes from the quantity of crystalized social labor embodied within it, which is measured by the amount of time the labor lasts (in minutes, hours, days, etc.).

This crystallization of social labor also includes all the previous labor worked up in the raw materials and the labor required for the tools, machinery, and buildings that assisted in the production of the commodity. The wear and tear on these instruments of production is also transferred to the commodity, gradually over time, based on the average wear and tear over a given period of time. For example, this allows for the calculation of how much value of a spindle is transferred into the cotton it produces daily.

Marx explains that another reason he uses the term social labor is because it considers the necessary amount of labor for production within a specific state of society and under the average conditions of production. This means that a lazier or less-skilled individual worker does not produce a more expensive commodity because they take longer, and it accounts for the way advancements that make it so that less labor is required to produce a given commodity—such as new technology, methods of production, or the division of labor—will lower its value.

Marx closes the chapter by re-introducing the idea of price, which is the monetary expression of value. The conversion of value into price gives it an independent and homogenous form that makes it easier to express different commodities as their quantity of social labor. This allows for the exchange of goods for money in the market, but also necessitates the importance of distinguishing between the market price of a commodity and its natural price (or value). Market price can oscillate above and below natural value due to the ebbs and flows of supply and demand: If supply exceeds demand, market price will fall below natural value, but if demand exceeds supply, market price will increase above natural value. However, looked at over a broader range of time, these increases and decreases in price level out, meaning that on average, commodities are sold based on their natural price (value).

This leads Marx to question where profit comes from, since it wouldn’t make sense to say it came from playing the market and taking advantage of supply and demand, since over time things equal out, and if someone wins as a buyer, someone else loses as a seller. Thus, a theory that explains how profit can be derived from commodities selling at their value is required.

Having explored the nature of value, Marx sets out to explain specifically how the value of labor is determined. He asserts that despite the commonly held idea that what workers sell on a daily basis is their labor, this is untrue. Instead, what they sell is their labor power—essentially, the worker’s capacity or potential to do work for a given period of time.

Marx then explains that like every other commodity, the value of labor power is determined by the quantity of labor necessary to produce it. In the case of labor power, this includes the cost of the necessities that need to be consumed in order to keep the worker alive, the cost of educating the worker so that they have the skills necessary to do the job, and—because workers will grow old and wear out, making them unable to continue working—the cost of supporting and raising children so that the workforce is replenished.

Marx explains the production of surplus value using the example of a hypothetical worker, a spinner who makes cotton. This spinner is required to work six hours of (average) labor every day to produce the value necessary to sustain them as a worker. In more concrete terms, if the commodities necessary to sustain them cost 3s, then the worker needs to produce 3s’ worth of value through their own labor, which takes them 6 hours. As this spinner is a wage laborer, they sell their labor power to a capitalist, and in those 6 hours of labor, add 3s of value to the cotton they produce, because, as outlined in previous chapters, the value of a commodity is determined by all the labor crystalized in it.

However, because the capitalist has purchased this worker’s labor power, like with any other commodity, they have acquired the right to consume or use it completely, which in this case, is for an entire day rather than just six hours. If the working day is 12 hours long instead of 6, that means the spinner transfers an additional 3s of value to the cotton they produce. Marx calls these additional hours worked “surplus labor,” which creates surplus produce and surplus value.

Thus, by advancing 3s in the form of wages for the laborer, the capitalist realizes 6s in value: three that can be advanced again in the form of wages, and three that exist simply as surplus value. This is because while the value of labor power is determined by the amount of labor necessary to reproduce itself, the actual use of that labor is only limited by the energy and capacity of the laborer, as well as any labor laws outlining the legal limit of working hours in a day.

This exchange between the laborer and capitalist ensures that the capitalistic system of production constantly reproduces itself, as the laborer never earns enough to escape the need to work, and the capitalist has a perpetual source of surplus value that can be re-invested to create new value, widening the wealth gap between the two classes.

Marx argues that because wages are paid after labor is performed, it gives the appearance that the capitalist is buying the labor itself, not the labor power. This also makes it appear that these wages (say 3s, as in the previous chapter) are for the full 12-hour workday, rather than the 6 hours in which their value is actually produced.

This illusion masks the fact that half of the worker’s daily labor is effectively unpaid and marks wage labor as distinct from previous historical forms of labor, such as enslavement or serfdom. With the enslaved person, there is no agreement about payment between the two parties, and all the labor appears unpaid, while with the serf, the compulsory portion of their labor where they work for their lord is clearly delineated. This is significant because in these cases, the compulsory exploitation is on the surface for everyone to see and feel indignant about, whereas under capitalism, the unpaid labor performed by the worker is hidden beneath the guise of an agreed-upon contract and appears to be voluntary.

Marx states the conclusion of his argument thus far: If the value of a commodity is determined by the total quantity of labor contained in it—that is, by the cost of raw materials, the gradual wear and tear of tools and machines, and the workers they employ—then profit is made by selling commodities at their real value, not over and above it. This is because in paying the laborer for their labor power, they extract surplus labor, and that surplus labor is added to the goods the laborer produces as surplus value. When the capitalist sells the commodity at its value, they are making profit, because part of that value was produced through unpaid labor.

Marx outlines how surplus value (which he also calls profit) is not pocketed exclusively by the employing capitalist. This is because, unless the capitalist also owns the land where production is completed and owns the instruments of production—which are often purchased with money borrowed from a financial capitalist—then some of the profits will need to be paid in rent and interest. Whatever is left after this, Marx calls “industrial” or “commercial” profit.

Marx makes two things clear. First, despite appearances, rent and interest do not come from the owned land or capital, but from the surplus value that is extracted from workers. Owned land and capital are simply forms of private ownership that facilitate the wage labor system. Second, the cost of a commodity is not determined or formed by the addition of rent, interest, and industrial profit; rather, these things are taken out of the value of surplus labor, and surplus value marks the limit of the value they have to divide among themselves.

Marx ends this chapter by discussing the difference between amount of profit (which is an absolute magnitude) and the rate of profit (which is a relative magnitude). These figures, and the factors considered when calculating them, can be used to help conceal the amount of unpaid labor that is used in production. For example, while rate of profit expresses the ration between paid and unpaid labor, if the calculation incorporates the cost of raw materials and wear and tear of machinery, the rate of profit appears lower and less exploitative.

Marx gives the example of 100 pounds advanced in wages, which is then realized as 100 pounds of profit—this would be a rate of profit of 100%. However, if the calculation is modified to include an additional 400 pounds of capital advanced in the form of raw materials and instruments of production, then the rate of profit drops to 20%.

Marx first explores the relationship between profits and wages. He asserts that wages and profits are inversely related. This is because once the value of all the past labor, raw materials, and wear and tear on machinery is deducted from the value of the commodity, the worker and the capitalist only have the value generated by the last employed worker to divide between them. For example, if the last employed worker added an additional six shillings of value, but was paid wages of three shillings, then the capitalist receives three shillings and rate of profit would be 100%. However, if wages were decreased to two shillings, the capitalist would receive four shillings and the rate of profit increases to 200%, while if wages were increased to four shillings, the capitalist would only receive two shillings, and the rate of profit drops to just 50%.

Next, Marx examines how value and price are related. He argues that while the values of commodities are determined by the total quantity of labor embodied in them and that this regulates market price, this value is not fixed for individual commodities. Instead, it changes with productive powers of labor employed, rather than its length or extent. In other words, more productive labor will produce more commodities within the given time, meaning a smaller quantity of labor is fixed in them, and the price is lower. The reverse also holds true: Less-productive labor produces fewer commodities and more labor fixed in them, which results in higher prices.

Marx outlines four different scenarios where workers should either fight for an increase in wages or resist their fall.

The first scenario involves changes to the price of necessities. If the value of necessities increased (due to a decrease in productivity, for example) without an equal rise in wages to compensate for this change, the price of labor would have dropped below its value, and the laborer’s quality of life would deteriorate. In the opposite scenario, where the value of necessities decreases (and the value of labor power with it), Marx argues that workers should resist a reduction in wages even though they would be able to purchase the same amount of goods as before on lower wages. This is because while their material life wouldn’t have changed, their relative wages—the laborer’s share of surplus value compared to the capitalist, and therefore, his social position—would have decreased.

In the second scenario, Marx argues that workers should fight for an increase in wages when the value of money depreciates, due to something like the discovery of more fertile gold mines. He points out that, historically, capitalists are eager to take advantage of situations like this, and that workers should not hesitate to defend their standard of living.

In the third scenario, Marx considers the impact made by changes to the length of the working day. He argues that capitalists are constantly fighting to lengthen the working day because longer days mean greater extraction of surplus labor, and in turn, more profit. If the limits of what is physically and psychologically possible are breached, Marx asserts it is the workers “duty to themselves and their race” (82) to fight for an increase in wages that not only matches the increased workload, but also accounts for the greater wear and decay it causes the body. He also warns that workers need to be wary of capitalists demanding an increased intensity of work in the same number of hours, as this has the same effect as increasing the length of the working day.

The final scenario examines the economic cycle and the impact it has on wages. As prices fluctuate above and below their real value, Marx insists that workers should resist a fall of wages as much as possible during down times, and fight for a greater share of the profit during more prosperous phases. To do otherwise, would be to “accept the will, [and] the dictates of the capitalist as a permanent economical law” (85).

Having demonstrated that the value of all commodities—including labor power—will be sold, on average, at its value, Marx examines the degrees to which the working class can be successful in its struggle over the share of profits with capitalists.

He points out that there are two things that mark the value of labor power as distinct compared to the value of other commodities: It has a physical limit and a social limit. The physical limit is that labor must be maintained and reproduced through the consumption of a certain quantity of necessities, and the working day cannot be so long and exhausting that the worker cannot do it day after day. The social limit is more variable and represents the traditional standard of life expected by the working class in a given place and time. However, Marx argues that history shows that capitalists can find ways to exceed both the physical and social limitations by paying wages so low that workers must also rely on things like state welfare in order to survive.

With the limits to the minimum value of labor power established, Marx turns his attention to the limits of profitability. Due to the inverse relationship that exists between wages and profits, he argues that the two limits are the length of the working day and the physical minimum wage (basically, the minimum that can be paid while still sustaining the worker). As these are two continually contested limits, the final determinant in the rate of profit is the struggle between capitalists and the working class. Marx also notes that as productivity improves, the composition of capital shifts away from variable capital (wages) to fixed capital (instruments of labor), which results in a reduced demand for labor and a fall in the price of labor power toward its minimum limit.

Marx concludes by stating that, while it is important for workers for fight for an increase in wages and resist their reduction given their material and social reality, they should not be mistaken in thinking it is a long-term solution to the problem of capitalism. The only way to ensure actual change is to overthrow the system altogether, because only then can the reconstruction of society begin.