Do Wages determine Prices?
The Socialist frequently encounters the illusion that prices of commodities generally are determined by, or in some way based upon, the wages of the workers producing those commodities. This illusion is common amongst members of all political parties to which we are opposed. Who has not met the Tory who regards strikes for higher wages as responsible for the high cost of living? or the Labourite who holds that strikes are useless because the capitalist can always recoup himself for an advance in .wages by raising prices? In fact it is curious to note that the Tory and the Labourite both lead the worker to the same false move, i.e., the abandonment of the strike weapon. No Socialist exaggerates the value of that weapon, but likewise no Socialist is fool enough to propose to discard it under capitalism.
The illusion referred to rests upon ignorance of the economic laws of present-day capitalist society. The person suffering from the illusion regards wages and prices as quantities arbitrarily fixed, either by the workers or the capitalists, or both. Prices are conceived by him as a compound of wages plus other cost of production. (raw material, machinery, etc.) plus a certain percentage of profit which is decided, apparently, by the capitalists’ own sweet will; yet a moment’s reflection should show that if the capitalist had the power to manipulate prices how and when he liked, there is no limit to the profit he would charge !
A reference to one well-established and widely-known fact should be sufficient to knock the bottom out of the fallacy. Soon after the outbreak of war in 1914 prices commenced to soar to a level 100 per cent. to 200 per cent. above their starting point. Was this the effect of a rise in wages? Obviously not! Wages did not commence to rise till after the general rise in prices commenced. Wages rose in fact only because the rise in prices made it impossible for the workers to continue producing wealth with their diminished purchasing power. Was the rise in prices due to a sudden increase in the greed of the capitalists? Again the supposition is absurd. Capital’s greed is constant. That which varies is the condition for its satisfaction. It was the alteration of this condition (i.e., the increased difficulties of production due to depletion of man-power in the factories, etc., coupled with the increased demands for various forms of wealth, munitions, etc., by the various States) which provided the reason for the rise.
One striking and important feature of this example, too, is this : that in spite of the national emergency and the impossibility of the workers living on the old wage, the wage rate rose only as a result of a struggle on the part of the workers themselves. This is the answer to our opponents of all shades who from time to time suggest that wages can be safely left to regulate themselves.
Having said this much, let us examine the actual basis of wages. Wages, in reality, are the price of a commodity, namely, labour-power. As such they are determined by the cost of production of that commodity, that is to say, they are based on the cost of living of the working class. The prices of other commodities are ultimately determined in a similar manner. The cost of production in terms of the labour-time spent in production (not, mark simply the money advanced by the capitalist), forms the value of a commodity which is expressed in its price.
Prices, however, are not maintained at value-level, automatically, but are arrived at as a result of competition between buyers and sellers. According to the variations, in the state of the market, prices fluctuate above and below the value-level. Wages are no exception. Only the constant vigilance of the sellers of labour-power, the workers, can prevent wages being pushed below subsistence level. Here« in lies the economic justification of the strike, i.e., the refusal to sell labour-power except on certain terms. Wages, then, are not determined apart from the struggle between the classes; they are an essential feature of the system in which that struggle is involved. Profits are the difference between wages and the total wealth produced.
Another important point arising from the example quoted is the following : whereas wages lagged behiad other prices in rising, after the war they were first to fall ! Here, again, we are not dealing with mere spitefulness on the part of the master class, but with a notable feature of the system by which they profit, i.e., the steady improvement in their strategic position on the economic field. During the war the introduction of more up-to-date machinery and new methods of industrial organisation had been stimulated by the factors above mentioned. Consequently, when demobilisation replenished the labour market, thousands found their occupations gone for ever. The normal process of capitalist development, expressing itself in an increase in the industrial reserve army (the unemployed), greater concentration of accumulated capital and relative lessening of the workers’ powers of resistance, had been accelerated.
So far, then, is experience from bearing out the utopian conceptions of the Tory and the Labourite, that the class struggle in its primary form, i.e., the struggle over wages, is indeed more desperate than ever, For the workers the position grows progressively worse, yet some people consider this an argument for abandoning the struggle. The Socialist realises more than anyone the’ hopelessness of the struggle so long as the workers confine their efforts to dealing with effects on the economic field, but this only leads him to emphasise the necessity of pushing the struggle into the political arena with a view to removing the cause. This, we proclaim, is the private ownership of the means of life. So long as the capitalist class own and control the sources of raw material and the means by which that raw material is worked up into useful articles and distributed among the population, just so long will the workers be compelled to struggle for wages, representing a steadily-falling standard of life. So long as the present system exists, so long will the few idlers monopolise the comfort and leisure which modern industry can make available for all. Are you content, fellow-workers, to be for ever slaves, to go through life branded by your wages with the status of commodities? If not, then study Socialism!
(Socialist Standard, May 1925)