Correspondence: Wages and Prices
Are wage increases an illusion?
A correspondent asks the following question : —
Would the workers be better off if they had higher wages? As far as I can see, if there is an appreciable rise in wages, the price of goods must be higher. Am I right or wrong?
This question is one of which little has been heard during the past ten years, but during the years 1914 to 1921, when prices were rising, it was in the forefront of every discussion at trade union and political meetings. If prices rise again this old bogey will be trotted out once more. How old it is can be seen from the fact that the question was put to Marx nearly seventy years ago, and was answered by him in the lecture which is republished in the pamphlet, Value, Price and Profit. That answer has stood the test of time, and has never been bettered. Our correspondent and others who are interested are strongly advised to read it in order to supplement the brief explanation given below, and the somewhat fuller treatment in our pamphlet, Socialism.
The first thing to notice is that the prices at which articles sell are not fixed at whatever amount the capitalist chooses to select. Competition between capitalists, each trying to realise a profit by selling his goods, prevents the individual capitalist charging a price far above the average market price for that article. The determining factor in all prices is the value of the article, that is, the amount of labour required in its production, including, of course, the amount of labour required in the production of machinery, fuel, buildings, etc., with the aid of which the process of production is carried out. When we say that a bicycle is worth £5, what we are really saying is that the amount of labour required to produce the bicycle is the same as the amount of labour required to produce the weight of gold represented by five £1 notes.
“Labour-power,” which is the commodity sold by the workers to the capitalists, has its value determined in a similar way. The value of labour-power is determined by the amount of labour required for the upkeep of the worker and his family. The price at which the worker sells his labour-power is his wages.
We see, therefore, that prices and wages, under a given set of conditions, are alike determined by factors outside the control of the capitalists.
The next point to realise is that the values of the goods produced by the workers are not determined by the amount of the workers’ wages. The values of the goods are determined by the average amount of labour (number of hours of labour) required in their production.
For example, in a 48-hour week, a worker might produce goods whose value is £5, but the amount of labour required for the upkeep of the worker is only 24 hours, which would mean that his wage is about £2 10s. The capitalist keeps the difference between the worker’s product and the worker’s wages.
If wages fall and the product remains the same, the employer’s profits are increased. If wages rise the employer’s profits are decreased.
Therefore, it is not true that higher wages are of no good to the worker. Nor is it true that higher wages lead to higher prices.
The truth of this can be tested by observation. If the capitalists could raise prices just how they like they would never object to higher wages or to higher taxes. Yet we see in practice that the capitalists will go to enormous trouble and expense to defeat a demand for higher wages or higher taxes. They know very well indeed that higher wages mean smaller profits.
The truth of the position outlined above is easily seen at times when the general level of prices remains unchanged. It is, however, not so clear when prices are rising or falling. Owing to changes in the amount of labour required in the production of articles of all kinds, or in the production of gold (due, for example, to new machinery and new methods), it is possible for all prices to rise or fall. When prices rise it costs more to provide for the upkeep of the worker, and consequently wages rise also, although in practice we generally find wages rising more slowly than the workers’ cost of living.
When prices fall it costs the worker less to provide for himself and family, and wages then come down along with prices. Sometimes, as in Great Britain, during recent years, wages fall rather more slowly than prices.
At times of rising prices, the capitalists and their agents and also many muddleheaded labour leaders, put forward this false theory that wage increases lead to higher prices, and are useless. The capitalists do this because they hope thereby to dissuade the workers from striking for higher wages, and hope to get them to accept permanently a lower standard of living. The workers should resist such attempts and should never miss a real opportunity of struggling for higher wages.
At a superficial view it may look inconsistent to struggle to raise the standard of living if the workers’ wages are based on what it costs to keep him and his family. It is, however, not inconsistent because the workers’ cost of living is not merely the cost of bare necessities. It can, and usually does, include other factors depending on tradition and the needs and customs of the trade in which the worker is employed and of the country in which he lives. If the workers are able at a particular time to resist wage reductions during a period of falling prices, or are able to gain and hold wage increases at a time of stable prices, they can to that extent better their position and improve their standard of living. As, however, this can only be done at the immediate expense of the employers, the latter will always strive to prevent it, and if the employers find it expedient to give way at the time, they will always endeavour to recoup themselves later on by speeding-up the work, introducing “labour-saving” machinery, employing a cheaper type of labour, employing women and juveniles in place of men, etc.
Therefore, while the wage struggle is necessary and it would be disastrous to give it up, it can never solve the real problem which faces the workers. That cannot be done by the day-to-day struggle against the capitalists. It can only be done by gaining control of the machinery of government and abolishing capitalist ownership and control of the land, factories, railways, etc.
ED. COMM.