Labor Demand and Technical Change

C. Labor Demand and Technical Change

In the following account Marx spells out the implications of rising organic com- position reflecting the adoption of machinery: “Machinery lessens the number of workers employed by a given capital. Hence, if on the one hand it raises the rate of surplus value” – by reducing the value of labor power – “on the other hand it reduces its amount, because it reduces the number of workers employed simul- taneously by a given capital” (MECW 34: 8). While employment falls relative to

a given total capital (c + v), “the development of productive power increases the number of workers who can be employed simultaneously by a variable capital of

9 Marx proceeds to a forced criticism of Hodgskin regarding the capitalist in his relation with capital. Thus bourgeois economists treat “[t]he capitalist, as capitalist, [as] simply the person-

ification of capital, that creation of labour endowed with its own will and personality which stands in opposition to labour” (MECW 32: 429). Hodgskin “regards this as a pure subjective illusion which conceals the deceit and the interests of the exploiting classes. He does not see that the way of looking at things arises out of the actual relationship itself; the latter is not an expression of the former, but vice versa. In the same way, English socialists say: ‘We need capital, but not the capitalist.’ But if one eliminates the capitalist, the means of production cease to be capital.”

C. Labor Demand and Technical Change 361

a given magnitude” considering the fall in the “value of . . . labour capacities” (9). There has, in brief, been “a relative increase in the number of workers set in motion by variable capital, even though there has been a fall in this variable capital and thereby in the absolute number of workers employed” (10). That employment increases relative to given v is, however, a formality since v in fact declines, having been partly converted into constant capital. Nonetheless, total wage payments are reduced – and not only in the sector immediately affected – and these released funds would

be “freed” (11). Such freed-up capital “can be invested in the same branches of production, to extend them, or in new branches. And since machinery takes hold, now of one branch, now of another . . . capital is in this manner continuously set free.” 10

Allowing solely for reemployment due to freed-up wage capital Marx estimates that the displacement effect will predominate on balance, and this even taking account of the increased machine-making contingent. For the latter “is naturally slower to take effect than the displacement of the workers by machinery,” whereas the pressures reducing labor demand are more profound. There is in the first place lower expenditure on final goods by “those thrown out of work,” and resultant “depreciation” of the capitals “which in part derived their return from the con- sumption of these workers . . . if they cannot find a foreign market for the part of their product which has been set free in this way.” To this must be added the fact that “the variable capital which has now been converted into constant capital, ceases to constitute a demand for labour. Even the labour it originally set in motion (machine workers, etc.) is never as much as the labour it releases, for this part of the capital, e.g. 1,000 laid out in machines, now represents not only the wages of the mechanics, but at the same time the profit of these capitalists, whereas previously it only represented wages (Ricardo).” 11

However, this is still a partial picture. Marx refers to conflicting forces at play: “If on the one hand machinery has the tendency constantly to throw workers out . . . on the other hand it has the tendency constantly to attract them, since once a par- ticular stage of development of productive power is given, surplus value can only

be increased by increasing the number of workers employed at the same time” (29). 12 Which force is likely to predominate on balance? At one point Marx found “laughable” the “peculiar obsession of the political economists with demonstrat- ing that in the long run large-scale industry based on the employment of machin- ery always re-absorbs the redundant population”; for “they want to prove that machinery is good because it saves labour, and then it is once again good because

10 Marx “disregard[s] here the fact that the use value of the income is increased, hence a greater part of it can be converted back into capital” (MECW 34: 11). This is a major Ricardian theme

(see Ricardo 1951–73 1: 8, 131–3, 166–7, 390), and will be explored presently (below, pp. 363, 364–5). 11 The reference is to Section v of Ricardo’s Chapter 1, especially 1951–73 1: 40–1. See further MECW 32: 177–8. 12 This perspective derives from the Grundrisse, on which see Chapter 8.D.

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it doesn’t save any labour, compensating for its replacement of manual labour at one point by making necessary labour at another point,” referring to “subsidiary labour . . . made necessary as a result of machinery” (30). This is an unconvincing objection, and in fact Marx himself recognizes new employment opportunities created by the output expansion made possible by machinery: “One might ask how it is possible at all for the application of machinery . . . directly to make possible new and increased labour, since all labour, from start to finish, whether directly performed by machinery or presupposed by it, must be less than the amount of labour previously contained in the commodity produced without machinery”

(31). 13 The answer, of course, is that though “the quantity of labour contained in

a yard of machine-made linen is less than that in a yard made without machin- ery, it by no means follows from this that if now 1,000 yards are produced with machinery where previously one yard was produced, there is not a great increase in labour – the labour of flax cultivation, transport and all kinds of intermediary labour.”

Marx focuses elsewhere in his manuscript on reabsorption in the machine- building sector of labor displaced by machinery. Full absorption could be ruled out, though he cautions that to phrase the matter thus was misleading since the issue is not the reabsorption of those actually displaced, but the absorption of new entrants into the work force: “The number of machine-building labourers is smaller than the number of labourers discharged; nor are they the same individuals as those discharged. The greater demand for labourers in machine building can at most effect the future distribution of the number of labourers, so that a larger part of the generation entering the labour market – a larger part than before – turns to that branch of industry” (MECW 31: 111). In any event, the permanent increase in demand for machine-building labor could not be identified with the total expen- ditures on machinery: “the increase in the annual demand . . . is not equal to the new capital expended in machinery. The machine lasts for example for 10 years. The constant demand [for labor] which it creates is therefore equal annually to 1/10 of the wages contained in it,” plus “labour for repairs during the 10 years, and the daily consumption for coal, oil and other mat´eriaux instrumentaux in general; which in all amounts perhaps to another 2/10.”

That the positive effect on the “generation entering the labour market” refers not to net additions to the work force but rather to the replacements of the original force, is confirmed in a brief elaboration (applying beyond the specific issue of reemployment in the capital-goods sector): “The shifting of labour and capital which increased productive power in a particular branch of industry brings about by means of machinery, etc., is always only prospective. That is to say, the increase, the number of new labourers flowing into industry is distributed in a different way; perhaps the children of those who have been thrown out, but not these themselves”

13 Marx here “leave[s] aside a setting free of capital and labor,” concerned as he is at this point with reabsorption given capital (MECW 34: 31).

C. Labor Demand and Technical Change 363 (112), As for the latter, “[t]hey themselves vegetate for a long time in their old

trade, which they carry on under the most unfavourable conditions, in as much as their necessary labour time is greater than the socially necessary labour time; they become paupers or find employment in branches of industry where a lower grade of labour is employed.”

In a further account, turning on Ricardo’s position regarding the positive long- run employment effects of machinery, Marx accepts that with the initial introduc- tion of machines and the displacement of labor two capital “funds” are released or, more accurately, are now available for accumulation. One relates to the savings made in wages; and another to the increase in purchasing power of net revenue due to reduced commodity prices (MECW 32: 179–80). As for the former, these savings – Marx agrees with Ricardo – are indeed “not impaired.” However, he once more cautions against the na¨ıve notion that it is the displaced individuals themselves who are available for reabsorption. Rather: “They may become paupers, starve, etc. One thing only is certain, that 10 men of the new generation who should take the place of these 10 men in order to turn the mill” – their rempla¸cants had there been no change in technology – “must now be absorbed in other employment” (180). (Here Marx takes for granted population increase though that is not his concern in the present context: “and so the relative population has increased independently of the average increase of population.”) Marx thus apparently accepts that the newly created increase in the available work force will be absorbed “in other employ- ment” in the light of the freed-up capital available: “The invention of machinery and the employment of natural agents thus set free capital and men (workers) and create together with freed capital freed hands (free hands, as Steuart calls them), whether [for] newly created spheres of production or [for] the old ones which are expanded and operated on a larger scale” (180; see MECW 29: 164). On the other hand, we encounter a further caution, and this against the “absurd” version of the wage-fund notion according to which the freed-up capital “must necessarily be laid out as variable capital (as if there was no possibility of exporting means of subsistence, or spending them on unproductive workers, or [as if] wages in certain spheres could not rise, etc.) and must even be paid out to the displaced labourers” (180). “Machinery,” Marx concludes, “always creates a relative surplus population,

a reserve army of workers, which greatly increases the power of capital.” It seems fair then to understand Marx as recognizing only the potential to reabsorb displaced workers – always in the sense of their rempla¸cants – considering that available funds might be lost to employment in various outlets, including maintenance of the displaced workers.

Considerable weight is placed on leakages from the so-called “wage fund,” leak- ages which reduce the potential for reabsorption and generate in the first instance net excess labor supply: “So far as the capitalist who introduces the machinery is concerned, it is wrong and absurd to say that he can lay out the same amount of capital in wages as before. (Even if he borrows, it is still equally wrong, not for him, but for society.) One part of his capital he will convert into machinery and other

1861–1863 III: The Labor Market

forms of fixed capital; another part into mati`eres instrumentales which he did not need before, and a larger part into raw materials, if we assume that he produces more commodities with fewer workers, thus requiring more raw material” (183). The “immediate result,” Marx concludes, “will be that a section of the workers is thrown on to the street.” Again, after denying that labor demand will remain unchanged once allowance is made for the capital-goods sector – “Ricardo himself has already shown that machinery never costs as much labour as the labour which it displaces” (on which see note 11) – and adding further that reabsorption in agri- culture in the production of additional raw materials could also not be counted

on, 14 Marx rules out full reabsorption at least as an “immediate result”: “Prima facie it is not likely that the introduction of machinery will set free any of the cap- ital of the manufacturer when he makes his first investment. It merely provides a new type of investment for his capital, its immediate result . . . is the dismissal of workers and the conversion of part of the variable capital into constant capital” (184). Again – and opposed to the “absurd fundamental notion . . . which underlies Ricardo’s view”: “The capital of the manufacturer who introduces machinery is not set free. It is merely utilised in a different manner, namely, in such a manner that it is not, as before, transformed into wages for the discharged working men.

A part of the variable capital is converted into constant capital. Even if some of it were set free, it would be absorbed in spheres in which the discharged labourers could not work and where, at the most, their rempla¸cants could find refuge” (185). (Though it is allowed at this point that “in the long run the labour that has been released together with the portion of revenue or capital that has been released, will find its vent in a new trade or by the expansion of the old one . . . this is of more benefit to the rempla¸cants of the displaced men than to the displaced men themselves”; 186; emphasis added.) Some potential for net accumulation created by productivity increase related to the adaption of machinery, is also allowed, but that “only gives the necessary vent (if it does so!) for that part of the annual pop- ulation increase that is for the time being debarred from the old trade into which the machinery has been introduced” (185; emphasis added). Thus it remains only an outside possibility which is scarcely countenanced that the (annual) demand for labour – “the necessary vent” – remains unchanged as a consequence of capital conversion or adoption of “machinery.”

All this relates to the “immediate” outcome of capital conversion – the altered pattern of allocating a given capital. But there is also the matter of net capital accumulation financed by increased purchasing power – the Ricardian theme

14 There will be no effect on demand for agricultural labor if the required expansion of raw materials is satisfied by imports: “it makes no difference whatsoever to the Englishmen who

have been thrown out of work, whether the demand for niggers or coolies grows” (MECW 32:184). “[E]ven assuming that the raw materials are supplied within the country, more women and children will be employed in agriculture, more horses, etc. . . . But there will be no demand for the dismissed workers, for in agriculture, too, the same process which creates a constant relative surplus population is taking place.”

C. Labor Demand and Technical Change 365 (see note 10) – such increase itself due to machinery: “So far as the general public

is concerned . . . revenue is set free as a result of the lowering in price of the com- modity produced by means of the machine” (184). 15 But here Marx is pessimistic even with respect to the rempla¸cants of those displaced: “For whatever purpose the revenue thus set free and reconverted into capital is used, it will in the first place hardly be sufficient to absorb that part of the increased population which each year streams into each trade, and which is now debarred from entering the old trade” (emphasis added). And matters would be worse still if some of the “freed rev- enue” were “exchanged against foreign products or . . . consumed by unproductive workers.”

The outcome of capital conversion is therefore excess labor supply taking account of the initial displacement of labor and any reabsorption due to the investment of “freed up” capital, combined with any additional reabsorption due to such net accumulation which itself results from the increased productivity supposed. The initial outcome of machinery thus entails a reduction in labor demand, and creation of excess labor supply even assuming a constant work force – allowing only for new entrants into the work force who comprise the replacement contingent – whereas in fact there is throughout a presumption of on-going population growth, part of which had under the original conditions found employment in “the old trade” but is now to a large extent excluded.

This rather “pessimistic” evaluation, it must be understood, is still only provi- sional. The final picture is in fact close to Ricardo’s Chapter 31. For Marx goes on to allow further compensatory expansions in labor demand of a secular order, some of which traced to the effect of new technology in increasing real purchasing power: “New ramifications of more or less unproductive branches of labour are continually being formed and in these revenue is directly expended. Then there is the formation of fixed capital (railways, etc.) and the labour of superintendence which this opens up; the manufacture of luxuries, etc.; foreign trade, which increasingly diversifies the articles on which revenue is spent” (186–7). Or again, Ricardo’s optimism, Marx conceded, was partly justified having in mind (apart from consideration of the “unproductive” service sector) the “spur given to accumulation”: “ . . . because of the spur given to accumulation, on the new basis requiring less living labour in proportion to past labour, the workers who were dismissed and pauperised, or at

15 See also: “The rising productivity of capital is directly expressed in the rising quantity of surplus labour appropriated by capital, and the rising amount of profit, which is an amount of value.

Not only is this amount of value growing, the same magnitude of value is represented in an incomparably greater amount of use values . . . ” (MECW 30: 303). More specifically, freed revenue can be used for consumption as well as investment purposes: “A part of the revenue thus set free, will be consumed in the same article, either because the reduction in price makes it accessible to new classes of consumers . . . or because the old consumers consume more of the cheaper article. . . . Another part of the revenue thus set free may serve to expand the trade into which the machinery has been introduced, or it may be used in the formation of a new trade producing a different commodity, or it may serve to expand a trade which already existed before” (MECW 32: 184).

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least that part of the population increase which replaces them, are either absorbed in the expanded engineering-works themselves, or in supplementary trades which machinery has made necessary and brought into being, or in new fields of employ- ment opened by the new capital, and satisfying new wants” (196). In fact, once net capital accumulation is fully brought into the picture, one encounters a pre- sumption of expanding demand for labor notwithstanding – even in consequence of – ongoing capital conversion with its concomitant labor displacement; also of high importance is the standard presumption of ongoing population growth: “If the productive power of labour has been increased through greater production of fixed capital in proportion to variable capital, then not only the amount, but also the value of reproduction will rise, since a part of the value of the fixed capital enters into the annual reproduction. This can occur simultaneously with the growth of the population and with an increase in the number of workers employed, although the number of workers steadily declines relatively, in proportion to the constant capital which they set in motion” (166). In conclusion: “There is therefore a growth, not only of wealth, but of value, and a larger quantity of living labour is set in motion, although the labour has become more productive and the quantity of labour in proportion to the quantity of commodities produced, has decreased.”

In some formulations there is particular emphasis on productivity increase due to new technology embodied in net investment, which happens to be Ricardo’s presumption (Ricardo 1951–73 1: 395). In these contexts too there is no ques- tion of absolute decline of aggregate labor demand: “The growing productivity of labour . . . [is] expressed in the fact that the part of the total capital which is con- verted into variable capital constantly declines in proportion to the part which is converted into constant capital. The quantity of labour employed grows with the growth of the total capital, but in an ever-declining proportion to the growth of total capital” (MECW 34: 205). Marx even allows that “[t]he variable part of the surplus capital could continuously absorb the whole surplus population, and yet the relative magnitude of the additional variable capital might still fall constantly, in relation to the total capital.” This conclusion holds good even when account is taken of conversion affecting the entire capital stock (206).

So significant is the phenomenon of net expansion of aggregate labor demand that it is even represented as a necessary characteristic of advanced capitalism: “An increase in the amount of labour on the new production basis is in part necessary in order to compensate for the lessened rate of profit by means of the amount of profit; in part in order to compensate for the fall in the magnitude of surplus value which accompanies the rising rate of surplus value on account of the absolute reduction in the number of workers exploited by means of an increase in the number of workers on the new scale” (MECW 33: 141). And this is followed by the extraordinary statement – also found in Capital (MECW 37: 262; see Chapter 3, p. 97) – that an absolute reduction in labor demand “would cause a revolution”: “ . . . it is only a need of the bourgeois economy that the number of people living from their labour alone should increase absolutely, even if it declines relatively. . . . A development

C. Labor Demand and Technical Change 367 of productive power which reduced the absolute number of workers, i.e. in fact

enabled the whole nation to execute its total production in a smaller period of time, would bring about revolution, because it would demonetize the majority of the population” (142).

There are exceptions to the rule of net expansion in aggregate demand for labor: “Increase in workers, etc., despite the relative decline in variable capital or capital laid out in wages. However, this does not take place in all spheres of production.

E.g. not in agriculture. Here the decline in the element of living labour is absolute” (MECW 33: 141; see also MECW 34: 31). 16 And, secondly, specific industrial sectors may experience absolute reductions in employment. The cotton industry provides

a conspicuous instance, as we shall now see. Marx cites Ure 1836 favorably on the tendency of the automatic workshop “to

drive out labour, to subject the worker to the ‘automaton-autocrat,’ to reduce the price of labour by substituting the labour of women and children for that of adults, and unskilled for skilled labour . . . ” (MECW 33: 499). But there is also the reabsorption of labor to consider: “Let us now see Ure’s further apologies for the displacement of labour, the throwing out of labour by machinery and the devaluation of labour associated with this” – via entry of female and child labor and deskilling – “and on the other hand his presentation of the drawing back of labour. For this repulsion and attraction is what is peculiar to the system” (MECW 34: 38). Marx commends Ure for describing the process correctly: “machinery continually casts out adult workers, and in order merely to ‘re-absorb’ them, to draw them back in, it needs to expand continuously” (39). What though of the balance of forces actually at play ? Account is taken of the fact – in Marx’s paraphrase – that “[i]mprovements in machinery are gradual, or only come into general use gradually,” while “[a]t the same time there is a continuous gradual extension . . . ” in the demand for adult labor reflecting extensions of the market for final goods as their prices decline with productivity increase. Ure is cited to the effect that “no diminution of earnings

for adults ha[d] thus far arisen.” 17 But this is far from the full picture. Marx also cites Ure regarding the threat of wage reductions in cotton spinning inducing the operatives to “combine to pay the expenses of sending their unemployed comrades away to America. . . . The trade-unions are, in fact, bound by their articles to pay certain sums to their idle members . . . to prevent them volunteering to work at under-wages from necessity.” Moreover, the apparent maintenance of the wage in

16 As for agricultural earnings: “It is demonstrated most strikingly in agriculture (in England) that with an increase in the productive power of labour the average wage not only does not rise, but

falls. On the average, the condition of the agricultural labourers in England has deteriorated in the same ratio as agriculture has been improved” (MECW 34: 45). Marx also refers to the constant transfer to the towns of “the surplus population of the countryside” (101; also 69). 17 Marx does not question Ure’s observation that wages in the mechanical factory were high because “they form a small part of the value of the manufactured article” (MECW 34: 39).

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fact reflected increased intensity of work (each man now made responsible for a larger mule-jenny with an increased number of spindles). As Ure points out, it was quite consistent that “those employed would prosper, but the combined body would be impoverished.” Moreover, while the operative did tend to gain somewhat

from productivity increase (40), 18 there is a further qualification: “Mr. Ure himself indicates that the increase in the productivity of the mule is accompanied by an increase in the number of children employed, children the spinner has to pay, and thus the apparent increase in his wage, which may be shown by comparative tables, is reduced to nothing, and probably turns into a negative quantity” (emphasis added). 19

On balance then, as far as concerns the cotton industry, the “probable” downward trend in the real wage – notwithstanding data suggesting an increase – is attributed by Marx to increasing organic composition not adequately compensated for by the

reabsorption effects of capital accumulation. 20 But, as we have shown in this section, the experience of the cotton industry is unrepresentative, for here there occurs an absolute reduction in the demand for adult labor, and therefore cannot be used to prove a general decline in real wages. Unfortunately, this is precisely what Marx does in Capital (see Chapter 3, pp. 89–90).