Relative Wages

Last month we refuted the suggestion that Marx held that under capitalism the amount of goods received by the working class would gradually fall below the poverty line. We showed that by “misery” Marx could not have meant absolute poverty of destitution because he stated on a number of occasions that working class misery would grow, even if wages were high. Finally, we promised to examine in this issue the concept of “relative wages”.

Marx first introduces this concept of  in Wage Labour and Capital, one of his early lectures on economics dating from 1847.

In section IV Marx distinguishes three relations involving wages:

First, the actual sum of money the worker receives from his employer which he calls “nominal wages” and which we would now call “money wages”.

Second, the actual amount of goods and services which at any time this sum of money will buy, or “real wages”.

(In this age of inflation workers are all too familiar with this distinction.)

Third, says Marx, “wages are, above all, also determined by their relation to the gain, to the profit of the capitalist – comparative, relative wages”. Relative wages, he goes on, “express the share of direct labour in the new value it has created to the share which falls to accumulated labour, to capital”.

Marx himself had not invented this idea; it was originally put forward by David Ricardo. Indeed at this time before he had fully worked out his theories Marx could properly be described as a “Ricardian socialist”, as the followers of Ricardo who gave his theories an anti-capitalist aspect were called.

Relative wages (i.e., the workers share in the product of their labour) can fall even though real wages (i.e., the amount of goods they receive) have risen, as a simple example will show.

Because value is measured by the amount of labour expended over time, the total amount of new value produced in a given time will always be the same (provided the skills of the workers remain unchanged). Thus if productivity increases and more wealth is produced in the same period, then the prices of each individual commodity will fall but the total value of all of them together will remain the same. Assume that, as a result of an increase in productivity, prices fall by 5 per cent. If wages remained unchanged, then real wages would rise by nearly 5 per cent. Relative wages, however, would be unchanged. But say money wages were to fall but not by as much as prices. The workers would still be better off in terms of the goods they received but their relative wages would have fallen.

As Marx put it:

“The share of capital relative to the share of labour has risen. The division of social wealth between capital and labour has become still more unequal. With the same capital, the capitalist commands a greater quantity of labour. The power of the capitalist over the working class has grown, the social position of the worker has deteriorated, has been depressed one step further below that of the capitalist.” (Wage Labour and Capital, section IV)

Nearly twenty years later in 1865 Marx returned to this theme in another popular lecture on economics. Here he assumes that wages fall by as much as prices, which would mean that the workers would be no better off materially, and comments:

“Although the labourer’s absolute standard of life would have remained the same, his relative wages, and therewith his relative social position, as compared with that of the capitalist, would have been lowered. If the working man should resist that reduction of  relative wages, he would only try to get some share in the increased productive powers of his own labour, and to maintain his former relative position in the social scale.” (Value, Price and Profit, Chapter XIII)

We are now in a position to say in what sense Socialists think the working class tends to become worse off as capitalism develops. They tend to become worse off in terms of the value of the amount of goods they receive compared with the value of what they produce. Saying that under capitalism the share of the working class in the wealth they produce will tend to fall is quite a different proposition to saying that the amount of goods and services they receive will fall. Most of those who accuse Marx of having believed that capitalism would reduce the working class to starvation have failed to understand this key distinction, which he took over from Ricardo, between relative wages and real wages. Relative, rather than real, wages is what tends to decline.

Capitalism is not to be justified by comparing the standard of living of most workers today with the lower standard of their grandfathers’ yesterday. The valid comparison is between what people get today and what they would get if modern industry were commonly owned and geared to producing for use not profit.

In any event, the case for Socialism does not rest on capitalism producing a poverty-stricken and down-trodden working class. Indeed, if capitalism were to do this Socialism would be impossible because it could not be  established by what Marx called “one level mass of broken wretches past salvation” (Value, Price and Profit). Socialism, both for its establishment and for its functioning, demands people who have learned the technical and social skills needed to live in a modern technological society. It is by training the working class in this rather than by completely impoverishing them that capitalism undermines itself and produces its own grave-diggers.

The case for Socialism rests on the fact that a society based on the common ownership and democratic control of the means of production can provide a better life for people who are now members of the working class, in terms of quality as well as in terms of satisfying material needs, than can capitalism.