Cooking the Books: Extracting profits

‘Tide has turned against capitalism, but socialism is a failed alternative’ read the headline of an article in the Times (4 December) by its economics editor Philip Aldrick. Of course socialism hasn’t failed as it’s never been tried; the examples he gave of Russia, China and Venezuela were state capitalism not socialism. But he also had something to say about Marx:

‘Marxists believe that their ideological father was right, that capitalism would destroy itself once growth was exhausted and profits could be accumulated only by appropriating the wages of labour.’

After bemoaning that an increasing number of workers had no stake in capitalism as they couldn’t afford to buy a house and to point out that inequality had increased since 2006, he went on:

‘For Marxists, there are other signs that their time is coming. At a global level, capital has been eating into labour’s share of the economic pie, proof that profits are being extracted from wages. According to McKinsey, incomes were flat or falling between 2005 and 2014 for two thirds of households in 25 countries.’

Aldrick seems to be accepting, as taught in economics textbooks, that both capitalists (called ‘entrepreneurs’) and workers contribute to the ‘economic pie’ and normally get their fair share, as profits and wages respectively, in accordance with their contribution. Things have gone wrong, according to him, as profits have begun to eat into the workers’ share, a view he attributes to Marx.

This implies that profits are not normally made by exploiting wage-labour. Marx’s view was that all profits arise from the surplus value produced by wage workers over and above what they are paid as wages. It does not come from reducing wages (even if this is a way of increasing profits). In fact profits are extracted from wage workers even if wages are rising.

For Marxian economics, wages are the price of what workers sell to their employer – their mental and physical energies, their working skills, what Marx called ‘labour power’. Like all prices this is determined by what it costs to reproduce, in this case the cost of what workers have to consume to restore the mental and physical energies used up in the course of their work. Normally they receive the full price but are still economically exploited as, while working for a capitalist employer, they produce more value than that of their wages and which is appropriated by their employer.

Marx was aware that some employers paid wages that were less than the value of their workers’ labour power, but this could not last as, if the workers couldn’t fully restore their labour power, then their health and so the quality of their work – and their employers’ profits – would suffer. Marx explained that this was the capitalist rationale behind the Factory Acts. Employers don’t have an interest in doing this and it is only done these days by small hole-in-the-corner capitalists employing the most unskilled labour. As Terry Woolmer, of the engineering employers’ federation, put it, ‘it has long been recognised that a healthy workforce is a more productive workforce’ (Times, 26 November).

Wages have stagnated or fallen over the past decade, not because employers have started to exploit workers (they do that all the time), but because that is what happens in a slump. The reduced demand for products means a reduced demand also for what workers have to sell, so, in accordance with the law of supply and demand, its price falls. If this helps turn the tide of workers’ opinion against capitalism, that’s all to the good.