The Rate of Surplus Value as Endogenous Variable

I. The Rate of Surplus Value as Endogenous Variable

The rate of surplus value or rate of exploitation certainly appears to be a key datum – or, better, an exogenous variable – of the pricing process. After all, the Transformation is set up with an initially given, uniform, rate of surplus value. This impression is misleading since the rate of surplus value is in fact an endogenous variable of the Marxian system. There are two aspects of the problem at hand: the uniformity and the general level of the rate of surplus value.

Uniformity of the rate of surplus value is treated by Marx as a characteristic feature of capitalism, rather than merely a simplifying assumption (Sweezy 1942: 63–6). But it is that too: “Such a general rate of surplus value – viewed as a tendency, like all other economic laws – has been assumed by us for the sake of theoretical simplification. . . . But in theory it is assumed that the laws of the capitalist mode of production operate in their pure form. In reality there exists only approximation; but, this approximation is the greater, the more developed the capitalist mode of production and the less it is adulterated and amalgamated with survivals of former economic conditions” (MECW 37: 173–4). A uniform rate of surplus value is assured by uniformity of the money wage rate, or (given the value of money) of the real or commodity wage rate, which in turn follows from the assumption of labor mobility and indifference to the various types of occupation (see above, p. 28). If laborers are thus indifferent and if they are paid the same commodity wage for a day’s work, their competition assures that the length of the work day comes to equality, for workers will transfer away from occupations with relatively long work days. Now a common work day means that the “value” generated per laborer is everywhere the same. And if from the value generated per head, the labor embodied in the worker’s daily wage (which is the same for everybody) is deducted, there remains the same s. In short, the work day determines the magnitude of (s + v) and is everywhere the same; and since v also is the same, s

and s/v are similarly everywhere equal. 26 (On this matter see Baumol 1973: 66, and note 14; and 1974: 55–6.) Considerable attention was paid by Marx to the basic assumption underlying the uniform rate of surplus value – that is, uniform wages – namely, “competition among labourers and equalisation through their continual migration from one sphere of production to another” (MECW 37: 173). On this

26 For Marx’s flawed attempt to demonstrate empirically that hours of work are indeed uniform, see West 1983.

Uniformity of the rate of surplus value is assured by labor mobility under the stated con- ditions, whether or not prices reflect values. And it is presumably this that Marx had in mind when he wrote of a uniform rate. But in the event that prices diverge from values, it will not be true that the profit-wage ratios (even when measured in labor units) tend to a common value, since there is no longer a 1:1 relation between the goods produced in a particular sector and the wage goods for which part of the output must be “exchanged.” In the value scheme, there- fore, we may consider the uniform rate of exploitation either as a uniform s/v or a uniform profit-wage ratio. In the pricing scheme, s/v still remains uniform assuming labor mobility, but the profit-wage ratio, which is, of course, the only “observable” ratio, will differ between

43 basis, disturbances to relative wages due to changes in the demands and supplies for

I. The Rate of Surplus Value as Endogenous Variable

particular commodities affecting laborers in particular industries differentially are continually corrected by labor movement. Marx’s common rate of surplus value is, therefore, the outcome of the process of competition, rather than a datum of the analysis.

To the extent that non-monetary conditions in fact differ between industries – including differential educational and training costs (MECW 35: 182) – the struc- ture of wages will adjust to assure appropriate price relativities. A change in the pattern of demand must in this manner affect the amounts of “socially-necessary labour” embodied in different commodities (see Bajt 1971: 125–69). The gen- eral problem created by wage differentials has been nicely put by Machlup and Morishima:

Marx, of course got his “homogeneous mass of human labour power” by correcting all the “innumerable individual units” for their deviations from what he called the labour “socially necessary . . . under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time”[MECW 35: 49]. The great difference between the (however questionable) efficiency units employed by modern writers and those employed by Marx lies in that the former do not try to deduce the value of the products from the quantity of labour after they had deduced the quantity of labour from the value of the products. (Machlup 1963: 194–5n)

As soon as the heterogeneity of labour is allowed for, the theory of value is seen to conflict with Marx’s law of the equalization of the rate of exploitation through society, unless the different sorts of labour are reduced to the homogeneous abstract human labour in proportion to their wage rates. This is a serious dilemma from the point of view of Marxian economists, because . . . if different sorts of labour are converted into the abstract human labour in proportion to their wages, then the resultant value system depends on relative wages and hence Marx’s intention of obtaining an intrinsic value system completely independent of markets is not fulfilled (Morishima 1973: 180–1).

We turn next to the level of the rate of surplus value. The “value” of money assumed constant, a given rate of surplus value implies a given money wage and real wage; and – with labor productivity unchanged in wage-goods sectors – the rate of surplus value moves inversely to the wage: “A general increase of wages, all else remaining the

same, is tantamount to a reduction in the rate of surplus value” (above, p. 38). 27 A

27 We can only talk interchangeably in terms of money and real wages assuming the value of money is held constant. If we allow for a fall in the value of money but a lag in the

money wage behind general prices, the real (commodity) wage will decline; and since labor productivity is unchanged, the rate of surplus value will be inversely affected. This is expressed (in unfortunately garbled form) in correspondence (Marx to Engels, 22 April 1868; MECW 43: 16–17). In the event of a change in the value of money which affects all prices proportionately, there will be no effect on the real wage and none on the rate of surplus value.

In the present context entailing changes in the general level of wages we can safely talk interchangeably of inverse movements in the overall or average profit-wage ratio or in the

44 Value and Distribution

fall in the length of the work day, of course, similarly implies a reduction in the rate of surplus value. But is the rate of surplus value – or the general level of wages –

a datum of the analysis of pricing? Marx gives the impression in the chapters surrounding the Transformation that it is, by assuming a given and uniform rate of surplus value in the tables; but he does so also by representing his concern in Capital

3, Chapter 11 in terms of the “effects of wage fluctuations on prices of production” – the title of the chapter – and playing down such fluctuations as mere “oscillations” in his “supplementary remarks” of Chapter 12 on “causes implying a change in the price of production”: “If the change in the rate of surplus value is not due to a depression of wages below normal, or their rise above normal – and movements of that kind are to be regarded merely as oscillations – it can only occur either through

a rise, or fall, in the value of labour power, the one being just as impossible as the other unless there is a change in the productivity of the labour producing means of subsistence, i.e., in the value of commodities consumed by the labourer” (MECW

37: 202–3). The “normal” level of wages is thus assumed given, and no allowance is made for the possibility of variations in the secular wage emerging endogenously in the system. Yet elsewhere Marx does treat of such movements and his analysis of prices of production must take account of them. 28

There is first of all the discussion in Capital 1, Chapter 25 on “the increased demand for labour power that accompanies accumulation, the composition of capital remaining the same” (MECW 35: 607). Here we recall the passage which defines the average composition within each industry (above, p. 32), and note the further affirmation that “the average of these averages, in all branches of production, gives us the composition of the total social capital of a country, and with this alone are we, in the last resort, concerned in the following investigation” (608). Now “[i]f we suppose,” Marx continues, “that, all other circumstances remaining the same, the [average] composition of capital also remains constant . . . then the demand for labour and the subsistence fund of the labourers clearly increase in the same proportion as the capital, and the more rapidly, the more rapidly the capital increases.” And Marx is clear that “the requirements of accumulating capital may exceed the increase of labour power or of the number of labourers; the demand for labourers may exceed the supply, and, therefore, wages may rise” (609). If now we relax the assumption of a constant average composition, then labor demand may be affected by various disturbances playing on that composition – its rate of change speeded up or slowed down depending upon the particular disturbance. The assumption of unchanged average organic composition is formally abandoned when Marx allows for technological change. In the event of “relative diminution of the variable part of capital simultaneously with the progress of accumulation,” runs his argument, the demand for labor lags behind the growth rate of total capital:

28 It is true, as Pokorni points out (1985: 116–17), that Marx declares that “[a]ll changes in the prices of production of commodities are reduced, in the last analysis, to changes in value”

(MECW 37: 204). But this holds only on the implicit exclusion of changes in the wage rate as

45 “whereas formerly an increase of capital by 20 per cent. would have sufficed to raise

I. The Rate of Surplus Value as Endogenous Variable

the demand for labour 20 per cent. now this latter rise requires a tripling of the original capital” (616, 619). Even in this more complex case, there may be upward movements of wages with increase in the rate of accumulation, as Marx makes strikingly clear in his discussion of Capital 3 relating to “absolute over-production of capital” – precisely that situation where accumulation has the effect of reducing profits by way of upward pressure on wages (MECW 37: 250; see chapter 5, p. 145).

Now once the variability of the wage rate is allowed it becomes impossible to preclude other influences upon it which make themselves felt by altering the average organic composition of capital. If a variation in the average organic composition can occur by way of technological change, there is no reason why it should not, for example, be allowed in consequence of a change in tastes. Nothing in the system precludes it.

Marx in fact dealt explicitly with the implications of alterations in the pattern of final demand for the wage rate in particular sectors, supposing the average to remain unchanged: “If, e.g., in consequence of favourable circumstances, accumulation in

a particular sphere of production becomes especially active, and profits in it, being greater than the average profits, attract additional capital, of course the demand for labour rises and wages also rise. The higher wages draw a larger part of the working population into the more favoured sphere, until it is glutted with labour power, and wages at length fall again to their average level or below it, if the pressure is too great” (MECW 35: 632). In all of this – which incidentally makes clear the output variations entailed by the equilibration process and is already implied by the assumption of a uniform rate of surplus value as explained earlier – Marx followed the lines set out in Smith’s chapter “On the Natural and Market Price of Commodities” and Ricardo’s chapter “On Natural and Market Price,” which recognized that changes in the pattern of demand might disturb the returns to the factors in the particular sectors affected (as well as the prices of the commodities), given the general rate of return. But Ricardo had gone further and spelled out the effect of changes in demand composition on relative factor scarcity and thus on income distribution (Hollander 1995: 195–201). Such effects can only be excluded by assuming uniform organic compositions of capital; and since the Transformation conspicuously rejects this assumption, Marx’s system must accommodate effects on general wages – and thus on the rate of surplus value – emanating from alterations in demand patterns, even if he himself neglected to carry out the analysis. 29

29 According to the so-called “new solution,” the set of prices must be known before the rate of (commodity) wages can be established (see note 12). Accordingly, always assuming differential

organic compositions, a change in consumption patterns may – by way of its effect on the “value of money” – alter the “value of variable capital” (given the money wage) as well as surplus value and thus the rate of surplus value. This Sinha objects to as “a highly un-Marxist result” (Sinha 1997: 53); and Lipietz admits that allowing an impact on distribution of changes in consumption patterns “does not fit very well with Marxist intuition” (Lipietz 1982: 83). But on our account this characteristic – if not the argument leading to it – is fully in line with

46 Value and Distribution