Marx and the Classical Canon: The Trend Path of the Factor Returns

C. Marx and the Classical Canon: The Trend Path of the Factor Returns

We turn now from surplus-value to the wage-rate and profit-rate trends. To establish their status we should recall that for Ricardo, Malthus, and Mill positive forecasting had not been the issue. Their land-scarcity based model comprised an “engine of analysis” designed to specify the strategic variables in order to provide a basis for policy recommendation, in which approach technical change is treated as a “dis- turbing cause” of a random order that might intervene to disturb the “predicted” outcome – falling wage and profit rates – based as it is on ceteris paribus reasoning (Hollander 1979: 637–42; 1985: 945–7; 1997: 978–9). Sir Edward West provides one of two major exceptions known to me to this sort of orientation, for he treated diminishing agricultural returns as an empirical not an analytical assumption, with the decline in factor returns expected notwithstanding technical progress (Hollan- der 1998: 232–3). J.B. Say is the second case, considering his explicit treatment of knowledge-creation itself as subject to diminishing returns: “in proportion as machines and accelerating methods become more numerous, the difficulty of still discovering new improvements is increased” (Say 1821 [1820]: 70–1; see Hollander 2005: 126–7, 255).

Marx’s falling rates of return to labor and to property are of a quite different order. For the ultimate collapse of the capitalist system required increasing immizer- ation and thus working-class dissatisfaction, supplemented by worsening cyclical

Conclusion – A Recapitulation and Overview

instability in consequence of the falling return to capital. The latter trend was responsible also for capital concentration and for the disappearance of the middle classes and the bifurcation of income distribution expected to precede ultimate collapse. There were disturbing causes but they were unable to reverse the secular paths – thus union pressure could at best “retard” not alter the direction of the downward wage path (Chapter 15, p. 450). Above all, there could be no appeal to technical change to justify empirically rising real wages since the outstanding feature of the analysis – its main claim to distinction – was its incorporation into the analysis as the key variable responsible for the downward trends.

Marxian theory thus certainly constituted an engine of analysis but was much more than that, purporting as it did to generate specific historical forecasts. As an engine of analysis it was defective. First, the falling real wage is said to result from

a labor-supply growth rate exceeding the rate of increase in labor demand. This outcome reflects population growth rather than the availability of unemployed labor encountered in most accounts of Marx’s system (see Chapters 3.D, 7.H, 8.D, 12.D). It is to Marx’s credit that he insisted upon expanding aggregate demand for labor, for it would have been quite outrageous to have missed this feature of

nineteenth-century growth. 18 The problem lies in his failure to justify a supposedly necessary expansion of labor supply at a faster rate than demand, a matter touched on in Section A above (p. 465). As for the falling profit rate, that too is not justified – though the standard objection which focuses on a rising rate of surplus value does not hold water – the outcome being highly sensitive to differential rates of productivity increase in the agricultural and industrial sectors (above Chap- ter 4.F).

Unlike the canonical growth model, Marx’s analyses of the trend paths of the wage and profit rates proceed independently of each other with too little said of the interconnections. In the last resort, since returns to both factors (I use the term advisedly) decline, one is obliged to allow into the picture – in classical fashion –

a third factor as beneficiary of rising productivity due to on-going technical progress. This complexity raises a historiographical issue of considerable interest: Did Marx himself understand the canonical model entailing falling real wage- and profit-rates? There is evidence from the 1861–63 materials that he did not, and with this revelation we shall close the present discussion.

Marx, so it appears, did appreciate Ricardo’s falling real-wage trend, which he contrasts with Smith’s reverse assumption. For both are said to “explain the fall of profits by the rise in wages, one of them [Smith], in real and nominal wages, the other [Ricardo], in nominal wages, with rather a decrease of real wages” (MECW

18 But according to Eltis’s account of Marx’s position “mechanisation would all the time reduce the demand for labour . . . ” (2000: 255). Subsequently, this is qualified – “ . . . the labour

force increases faster than the demand for labour” (257) – apparently allowing for a positive expansion of demand.

D. Marx as “Revisionist”

32: 445). So far so good (though elsewhere we find him attributing to Ricardo growth at the minimum real wage, e.g., Chapter 8.D). But he errs when he proceeds to argue that a fall in the real wage might insulate the profit rate. Thus he maintains that if the corn price rises in the Ricardo-Malthus land-scarcity case the profit rate decline followed logically in consequence of the fall in s/v : “this can only arise from the fact that a great quantity of necessary labour time is required on the worst lands, and therefore a small quantity of surplus labour is left over. . . . But if we assume with Malthus that the wages of labour fall, because more labour is required to produce them, how can the rate of profit be reduced thereby?” (MECW 34: 157–8). Now the fall in the wage under discussion relates to the commodity wage, which falls because of diminishing-returns pressure. Again: “If the corn has become dearer by 1/3, and

he receives 1/3 less corn, he continues to work the same surplus labor time for his employer. . . . The rate of profit would thus remain the same . . . ” (158). Here Marx shows a failure to appreciate a key feature of the canonical model, namely that the fall in productivity necessarily exceeds the fall in the real wage so that the labor embodied in the basket – in Ricardo-Malthus terminology “proportionate wages” – necessarily rises, or in Marxian terminology the “rate of exploitation” s/v necessarily falls. (It is, incidentally, the same error made much earlier by Mountifort Longfield 1834: 184–5.) As Malthus had summarized the matter: “if poorer land which required more labour were successively taken into cultivation, it would not

be possible for the corn wages of each individual labourer to be diminished in proportion to the diminished product; a greater proportion of the whole would necessarily go to pay the wages of labour; and the rate of profits would continue regularly falling till the accumulation of capital had ceased” (Malthus 1836: 274; 1820: 299). The orthodox growth model was based on far stronger grounds than Marx (or Longfield) imagined. It is then particularly piquant that an increase in wage-goods costs according to Marx’s own analysis of the profit-rate trend generates the same final outcome as in the orthodox analysis (Chapter 4, p. 129). As Samuelson has phrased it: “When the limitation of land and natural resources are added to the model of Karl Marx, he also ends up with the same canonical classical model” (1978: 1415).