The Fall in the Value of Labor-power as a Contributor
to the Tendency of the Rate of Profit to Decline
1: THE RATE OF PROFIT AND THE VALUE OF
LABOR-POWER
The Tendency of the
Rate of Profit to Decline
The tendency of the system-wide average or general rate of profit (P’) to decline has been attributed (esp. by Marx) to, on the one hand, the growth of the organic composition (that is the relative growth of constant (c) capital (materials, machinery, buildings; or, ‘dead’ labor; or, value-transferring) to its variable (v) capital (workers; ‘living’ labor; or, value-adding) complement. This, the organic composition (OC) of capital, is often written as (c + v).
On the other hand, the competition between capitals, backed by trade and monetary policies of national states, has also been cited (esp. by Robert Brenner[1]) as being the invisible hand driving down rates of return. Brenner’s position has been summed as “…capitalism, innovation and competition enjoy a symbiotic relationship. Competition not only explains the global economic crisis of 1998, it also serves as a sine qua non for capitalism origins.”[2] These first two, Marx’ and Brenner’s, are essentially complementary as it is the drive for the larger market-share resulting from prices lower than one’s competitors that is the motive force for the development, acquisition and employment of machinery capable of raising the productivity (output per unit per unit of time) of the labor-power employed and thus lowering output costs, widening the spread between such costs and the existing market-prices and thereby raising one’s rate of profit, if only temporarily as the enjoyed technological advantage dissipates as the innovation spreads and becomes the new standard returning the prime innovator’s margin to the sector average.
It should also be mentioned, as regards the former purported cause, that the relative growth of the constant capital ratio to variable is further augmented by, and somewhat obscured by, the tendency of the variable capital to become diluted by the growth of the segment of the work-force that is engaged in non-value-adding tasks (e.g. security guards, accounting, advertising, etc). This enlargement of the potion of the variable capital ‘v’ allocated towards non-productive labor, or what might be called ‘~v’, tilts the scales of the organic composition even more heavily in favor of the constant. Effectively the composition of such capitals may be expressed as (c + (~v)) + v wherein the term (c + (~v)) denotes the value-transferring portion while v stands alone as the value-adding portion. This observation (esp. by Fred Mosely[3]) is not, however, the subject at hand. Neither is Brenner’s competition save in its role as complement to that which is, namely the tendency of the enlargement of the ratio of the constant capital to the variable and a little discussed associated consequence arriving there-from.
Neither, for that matter, away from the universe of Marxian economists, is J M Keynes’ assertion that it is savings that is the culprit. Keynes’ argument, if only for the sake of an argument not to be debated here, along this vein, might be interpreted as follows: as a nation’s economy matures (i.e. grows richer) savings pour at a faster and faster rate into its money-marketplace seeking to be turned into means and materials of production, competing amongst themselves for the ‘right’ to align themselves with labor.[4] These lower the rate of profit as the rate of increase of investment outstrips the rate of increase of the labor force lowering what Keynes termed the “marginal efficiency of capital.”[5] Keynes’ argument, taking place in the sphere of the circulation of money-capital, as Brenner’s foray into the circuit of commodity-capital, seems again an analogous parallel of Marx’ analysis of productive-capital in the sphere of production.
However, as with Brenner and Moseley, this is again but a side-track, a ‘feeder line’, a trunk rail loading its cargo onto the runaway train that is a capitalism choking on its own regurgitations of bellows of smoke, sliding backwards down hill in spite of the earthshaking roar of its mighty engines. There is another problem contributing to the double-double toils and troubles of the system’s locomotive and that is the fuel its machinations gobble up in this vain quest to rise up an ever steepening mountain of the rate of profit. That fuel, of course, is human labor; and, the problem with that fuel is the tendency of its value to fall.
Changes
in the Unit Costs of the Variable Capital
Aside from changes in the OC induced by the addition of more or more expensive machinery and/or less or the same amount of workers subjected to ‘speed-ups’ to produce a similar or greater amount of output, the ratio of constant to variable capital, the organic composition, may also be affected by changes in the unit costs of the variable capital. A lower rate per unit of labor-power would mean that a greater amount of labor could be commanded per unit of variable capital. All things being equal, this might mean the production of a greater amount of goods with the same financial expenditure. The tendency to cheapen the cost of the variable capital is a concomitant, both a cause and a result, of the development and maturation of capitalist production as a result of capitalism’s propensity to increase its rate of production of the means of subsistence of the labor-force faster than the growth of population[6]. Capitalism is the anti-Malthus. Up to a point. For among the factors contributing to the tendency of the rate of profit (P’) to decline is, somewhat counter intuitively, exactly this tendency toward the cheapening of the production and reproduction of labor-power or, what is the same thing, the decline in the value of labor-power as the value of labor-power is just that cost of reproduction.[7] Now, as the motive behind this trend is exactly to raise the rate of relative surplus-value[8], that is to lessen the portion of the working-day during which the worker recreates the value of his own wage (v) and thereby lengthen the time devoted to the production of surplus-value (s), the assumption of what Marx termed the (1) “general rate of surplus-value” (S) [9] might also strike one as similarly disingenuous. Nevertheless we begin with just that premise. Likewise we are also, for the moment, assuming the (2) equality of exchange[10] wherein equals are exchanged for their counterparts in labor, commodity and capital markets. And finally, when we consider, as we must, the individual we must and can only consider him as representative of her class, i.e. we assume (3) we are speaking of the statistical average. With these assumptions there are things to be said as regards the value of labor-power, its tendency to decline and the consequent effects that such a decline has upon value-creation. We will begin with a brief sketch of the argument and supplement this logical analysis later.
Relationship of the Wage (V)
to the Cost-of-Reproduction (R)
Beginning from the posited equality of exchange (the second assumption above), all things being equal, which they are when we consider the average (per the 3rd assumption above), and in conjunction with the Marxian premise of the value of a commodity being equal to it’s cost-of-(re)production[11], labor in this respect being no different from any other commodity[12], we are led to the conclusion that the total wages (V) paid over the course of the worker’s life compensate her and (through her) her family[13] and the state[14] for all of the costs of producing and daily reproducing (R) her as a worker:
V = R
And further, again due to the ‘fairness’ of the wage-bargain (between worker and capitalist) there ought be an equality that exists between the total wages received over a lifetime (V) not only to the cost-of-reproduction (R) but also to the total (life-time) value-added by labor (L); and, by way of the general rate of surplus-value (S’), these should be in proportion to the wage (v) received per time period and surplus-value produced (s) per time period. Or,
V=
R = L | v | s
Therefore, assuming this equality of (V =) R = L then it might be said that:
If R = L | v | s If the cost-of-reproduction of the laborer (R) is equal to
the total value added by labor (L) which (by way of S’) is proportional to the wage (v) per time period which (again by way of S’) is proportional to the surplus-value
( s ) per time period
And R1 > R2 > R3 … And the cost-of-reproduction of the laborer ( r ) is lessening
Then L1 > L2 > L3 … Then the value-added-by-labor ( l ) ought lessen
And v1 > v2 > v3 … and the wages paid (v) per time period ought lessen
And s1 > s2 > s3… and the surplus-value created (s) per time period ought
lessen [15]
and with it the rate of profit which is calculated by a lessening s (s-) divided by an, at best unchanging (C) but more likely, growing C (C+):
s-/C
or (C+)
This is the argument, somewhat convoluted because we shift from the macro-level analysis of V, R and L, which are life-time measurements, to a micro-analysis of v and s as data of wages (v) and profits (s) are generated periodically. In Part 2 relative surplus-value is explored. And in Part 3 elementary data in support of the thesis are presented. And lastly, the ideas presented are briefly summarized.
2: Relative Surplus-value and its Discontents
“…the labour-time necessary for the production of labour-power, or for the reproduction of its value, cannot be lessened by a fall in the labourer's wages below the value of his labour-power, but only by a fall in this value itself… Such a fall in the value of labour-power implies, however, that the same necessaries of life which were formerly produced in ten hours, can now be produced in nine hours.”[16]
Reversing
this, does the fact that, as is the norm for capitalism, “...the same necessaries
of life which were formerly produced in (say) ten hours, can now be produced in
nine hours…” while certainly indicating an increase in the relative
surplus-value also imply that the value of labor-power has declined? But before tackling this Janus-face a few
words regarding some of the other things that bear upon these issues.
Countervailing Forces
Import of Surplus-value into US-The Imperialism Argument
Surplus-profit obtained through unequal exchange (terms-of-trade) with foreign trading partners and shared with national workforce would help to mitigate this effect of this cheapening of labor-power.[17]
Expansion of the Value-relationship
The decline in the value of labor-power is slowed by the addition of more use-values[18] into the reproduction basket. Since capitalism has arisen a host of new wants, new needs has arisen: auto, telephone, radio, television, refrigerator, computer, cell phone, etc. These have provided the system with new safety valves even though some of the new inventions often exacerbate (as in the case of the computer) the downward spiral of labor-power’s value by increasing productivity.
These appear to go through four phases: entry (invention), popularization and standardization followed by stagnation which occurs when the markets have been saturated and all new production is geared toward product replacement and market maintenance as opposed to product introduction and market expansion. And thus each new product injects a large amount of new value-creating ability only for a portion of its product-life cycle. Some of these new needs have become obsolete such as the horse-drawn buggy, the record player the typewriter and, slowly riding on off into the sunset in a spaghetti western scored and scripted of, by, and for itself, film photography and videography.
Raising the
Rate of Relative Surplus-value
“(An) objection to Marx’s argument is that increased productivity reduces the cost of providing workers with their existing living standards (‘the value of their labour power’). The capitalists can therefore maintain their rate of profit by taking a bigger share of the value created.”[19]
Above, as assumption (1), we had posited the S’ as given (to wit: a
constant). Further along in his paper
Comrade Harman begins his dismissal of this concern with:
“Marx himself recognised that rises in
productivity that reduce the proportion of the working day needed for workers
to cover the cost of their own living standards could form a “countervailing
influence” to his law.”
But even
“…with a hypothetical “maximum rate of
exploitation”, when the workers labour for nothing…It can be shown that
eventually even this is not enough to stop a fall in the ratio of profit to
investment.”
This assertion is, however, not
demonstrated in Harmon’s paper and we cannot tell how this may have impacted
upon the premise of this paper that such a fall in the value of labor-power
lessens the value-adding ability of the laboring force and thereby
contributes to the tendency of the profit rate to decline. However, Chris Harmon’s “maximum rate of exploitation” with the workers
receiving nothing for laboring, in a mirror-image replacing wage-less workers
with wage-less machines, calls to mind the old saw atrributed to Walter Reuther
responding to a proud and haughty Henry Ford as he, while showing off his
latest labor-reducing machinery, exclaimed “Walter, how are you going to get
them to go on strike?” Reuther is
alledged to have responded with this rejoinder, “Henry, how are you going to
get them to buy Fords?” That, indeed,
is the question. A question has not
only to do with the value of labor-power and its discontents but also, even
more importantly, with the question of the very nature of value itself that is
implicit in the Ford/Reuther repartee.
Therefore a brief sojourn into the question of ‘value’ is, at this
point, necessitated.
Value
To the declaration that the value of any commodity is determined by the labor-time necessary for its production Marx attaches amendments. The first of these is that value is computed upon not just any kind of labor but “human labor in the abstract.”[20] This admonition is quickly followed by a similar warning that this labor-time be “no more time than is needed on an average, no more than is socially necessary… to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.”[21] The next codicil is that for a commodity to be able to realize its full value it must have been produced in accordance with the social demand for it.[22] And, the last mentioned here and to the point at hand is that, the amount of value-added produced is limited by the revenues (wages and profits) produced. In his tortured and detailed Chapter XLIX of Vol 3, while using the word “difficulty” or variations of it some 13 times, Marx tries to explain,
“How can an annually produced value,which only =wages+profit+rent, buy a product the value of which=(wages+profit+rent)+C? How can the annually produced value buy a product which has a higher value than its own?”[23]
And does so with the explanation that the value of the “C” never leaves the sphere of production and hence there is no reason to for an accounting of it as a portion of the revenue stream in the sphere of circulation.[24] Then, just a bit later, he adds
“…the total sum of newly added labour is realised only in wages and surplus-value…” [25]
And as “newly added labour” has been above postulated as newly added value (subject to a modification below) the equation would conclude that such ‘newly added value’ would be realized (and limited by) “only in wages and surplus-value.” And therefore reducing, or as in Ford’s case eliminating, wages would have the effect of reducing, or eliminating, the value produced with the codicil, of course, that such a reduction is not compensated for by an increase in profits. Though how it is that value and profits can be produced without wage-labor and the consequent purchasing power generated in the form of wages necessary to realize such profits is beyond the assumptions both explicit and implicit in this argument.
Lowering the Value of
Labor-power
There are two ways, designated here as objective and subjective, by which the value of labor-power is lowered. The first is of a technical nature, whereas the latter is the resultant of conscious decision-making on the part of the capitalist class and its government.
Objective Causes of the Lowering of the Value of Labor-power
“…the labour-time necessary for the production of labour-power, or for the reproduction of its value, cannot be lessened by a fall in the labourer’s wages below the value of his labour-power, but only by a fall in this value itself.”[26]
Lowering the Value of Labor-power through Improvements in the Production of the Means of Subsistence
“In order to effect a fall in the value of
labour-power, the increase in the productiveness of labour must seize upon
those branches of industry whose products determine the value of labour-power,
and consequently either belong to the class of customary means of subsistence,
or are capable of supplying the place of those means.”[27]
This is accomplished, as per footnote 6 above, by improvements in the production of the means of subsistence[28] in what Marx referred to as Department 2[29] or what A C Pigou referred to as “wage-goods” industries.[30]
A secondary objective cause is the debasement of skills through the adoption of means of production that incorporate into machinery skills once the purview of humans.[31]
Subjective Causes of the Lowering of the Value of Labor-power
“No doubt, the capitalist can, instead of five shillings, pay the labourer four shillings and sixpence or even less…This result, however, would be obtained only by lowering the wages of the labourer below the value of his labour-power.”[32]
Lowering of
the Value of Labor-power as Inclusive of Reproduction
a.) The ‘One-child’ policy of China[33], initiated by Deng Xiaoping in 1979, looked at from this standpoint seems to be a way of raising the living standards of the present workforce at the expense of living to the unborn as referenced (in footnote 13) above.
b.) The fact that the percentage
of women in the US workforce rose from 29% in 1948 to 46% in 1998[34],
indicates that whereas before the (male) worker’s “ordinary
wages suffice, not only for its maintenance, but for its increase”, these must
now be supplemented by a second parent’s.
The fact that this is as much because of objective necessity as it is a
product of changes in feminist consciousness is notwithstanding. Further, along this line, deliberate
governmental policy cajoles as much as the decline in wages compels females
into the legions waging this women’s bourgeois revolution against the feudal
relations of stultifying patriarchy.[35]
c.) Reproduction implies planned obsolescence and, in this sense, the planned obsolescence of the worker himself. Retirement from the workforce, all things being equal, ought open a position for a member of the next generation. The lowered value of labor-power postpones this inevitability. A Yahoo! Search of “raise retirement age” brings citations urging the same in US, Britain, Germany, India, Singapore, etc.[36]
Lowering of the
Value of Labor-power through Competition with Labor-powers of a Lower R
Though, obviously, possessing an ‘objective’ basis the alleged causes below are listed under the ‘subjective’ heading as they, being exogenous to a ‘closed’ US market, impinge thereupon solely as a result of negotiated and/or ‘gentlemen’s’ agreements.
External-Outsourcing Production
“If China," says Mr. Stapleton, M.P., to his
constituents, "should become a great manufacturing country, I do not see
how the manufacturing population of Europe could sustain the contest without
descending to the level of their competitors." (Times, Sept. 3,
1873, p. 8.)”[37]
“The cost of an Indian graduate is roughly 12% of that of an American one. Indian graduates also work more: an average of 2,350 hours a year compared with 1,900 hours in America and 1,700 in Germany. The bottom line is that you can buy almost ten Indian brains for the price of one American one...”[38]
“…given estimates of $28,000 to $40,000 for
the surgery in the United States -- well beyond the wallet of her or her
employer…she found that the surgery is performed in India at a fraction of the
cost. A trip to India, she learned,
organized by an intermediary called PlanetHospital, would bring her surgical
costs down to $7,000. She could even take her sister Carol from Oregon along,
stay in a hotel for a few days after, and the total bill wouldn't climb past
$10,500.”[39]
Internal-Insourcing
Workers
“In some cases, the competition is direct: workers cross borders to take jobs in rich countries…immigrants' share of the workforce has risen a lot in some European countries (notably Britain, Germany and Italy) and in America, where it is close to 15%.”[40]
Lowering of the
Value of Labor-power through Increased Production of Scarce Labor-powers
As new technologies arise (e.g. computers) new skills (e.g. programming) are required. As these skills present opportunities previously non-existent, the first ones into these new areas are compensated above their value similar, in a way, to new technologies invading a sphere of production and lowering the individual values of the products produced by them thereby earning their employers what Marx termed ‘surplus-profit’.[41] However,
“A capitalist
working with improved but not as yet generally adopted methods of production
sells below the market-price, but above his individual price of production; his
rate of profit rises until competition levels it out.”[42]
And
as with machinery so with living-machines:
“As the level of education and training required by employers
continues to rise, the proportion of programmers with a college degree should
increase in the future.”[43]
3: DATA
To lend credence to what has been asserted above, it seems as if there are 3 things that must have occurred:
1.) the part of commodity-value taken up by the revenues generated (profits and
wages) ought have fallen as a larger percentage of said commodity-value comes to be occupied by the constant capital;
This first, in spite of The Economist’s protestation that “profits now comprise the highest share of American output since the 1960s…”[44] as, it is possible that
2.) labor’s share of those revenues must have fallen as an increase in the rate of
the relative surplus-value would tilt the scales more in favor of capital’s profits;[45]
and, finally, that
3.) this (labor’s) shrunken share, in spite of The Economist’s headline heralding “Smaller shares, bigger slices” cited below, must either have decreased absolutely or at least failed to keep pace with the rate of inflation. Either would demonstrate that value of labor-power has lessened.
The charts below demonstrate these things:
In the first chart[46], the blue line graphs the consumption of ‘fixed’ [47] capital (COFC) which is the constant capital (c) used while the red line charts income (NICUR) which is the equivalent of the wages (v) and surplus-value (s).
1.) The
Growth of Constant Capital Relative to Revenues (v + s)
In the first quarter of 1947 national income was $237.2 billion (annualized) and the fixed capital consumed $25.6 billion or 10.79% of income. In the first quarter of 2006 income was $13,008.4 and the consumed capital $1548.0 or 11.90%. And this despite the massive shift in the US economy away from capital-intensive production of goods to services.[48] It can be seen that a larger share of commodity value (c + v + s) is being taken up by the value of the constant capital (c)[49] and, hence, indicating a tendency (holding the rate of surplus-value constant) for the rate of profit (s/ c + v) to decline as a larger portion of commodity value comes to be made up of elements of the constant (value-transferring) capital relative to the revenues generated before their division into wages and profits.
2.) Labor’s
share of Income
The second chart below demonstrates that the rate of relative surplus-value has increased as labor’s share has diminished due to the effects of technological change and globalization of production. This has been mitigated, to a lesser degree, by governmental policies:
3.) Real Wages (a.) and Wages Plotted against Personal Consumption Expenditures (b.)
a.) “Real wages in the US rose during every decade from 1830 to 1970. Then this central feature of US capitalism stopped as the figures below show:
|
1964 |
$302.52 |
|
1974 |
314.94 |
|
1984 |
279.22 |
|
1994 |
259.97 |
|
2004 |
277.57 ” [51] |
|
|
|
b.) The
Personal Consumption Expenditure (PCE) is an index that measures of goods and
services targeted towards individuals and consumed by individuals. This is used as an index of the value of the
means of subsistence. In the chart
below it (blue) is plotted against (in red) Personal Income (PI).
It seems clear that the growth of the former out-paces that of the latter.
4. SUMMATION
All new value exits production and enters the sphere of circulation in the form of commodities, the sale of which realizes the surplus-value they represent and contain. Some might argue that the portion of the commodity-value representing the value of the variable capital paid out in wages is ‘new value’ but the worker, in the portion of the working day devoted to necessary labor, merely recreates pro rata his own value that he has used up to bring himself to work. And thus all newly created value appears first in the form of surplus-product(s) [53] produced by surplus-labor (i.e. that labor, free to the capitalist, beyond the labor necessary to produce value equivalent to hir’s own wage) containing surplus-value, the sale of which realizes in monetary form the profit the capitalist has produced.
The result of this lowering of the value-power, be it from ‘objective’ or ‘subjective’ causes is nonetheless the same:
“With the four shillings and sixpence which he produces in nine hours, he commands one-tenth less of the necessaries of life than before, and consequently the proper reproduction of his labour-power is crippled.”[54]
It is no great leap of faith to infer from the above that the value-adding ability of a labor-power whose "proper reproduction of his labour-power is crippled” is similarly “crippled.” And, even further down this breaking chain of cause becoming effect becoming cause, she is ‘crippled’ in her abilities to purchase[55] some portion of these self-same surplus-products(s) and thereby aid in the realization of the capitalist’s appropriated surplus-value. Surplus-value monetized by such purchase, and then capitalized by its transformation into new means of production or utilized by same transformation as new means of consumption, remains in its guise of surplus-product unsold and unused abdicating its potential contribution to the rate of profit. The ‘crippling’ of the worker works out its revenge upon its crippler.
Final Note: Impact of the Decline in the Value of
Labor-power upon the Class Struggle
“There is a potential for conflict
between the main beneficiaries of globalisation - those whose control of
capital enables them to exploit the workforce in Asia - and the huge majority
of the population in the West who have no such luck. Because it lives in the
developed world, that population finds itself forced to sell its labour power
at a price that is no longer competitive in the global marketplace. This
implies more exclusion and a crisis for the welfare state; but it could also
mean a resumption, in a new form, of the class struggle.”[56]