The Inverse Wage-Profit Relation

F. The Inverse Wage-Profit Relation

In his section on “Surplus Left by Labour” in Poverty of Philosophy (above, p. 210), Marx refers to Proudhon’s position that the notion of a doubling of all prices was “absurd,” considering the “law of proportionality” that is the labor theory of relative price (cited MECW 6: 152). “Unfortunately” Marx protests, “in the very same work [Proudhon 1846, 1: 110] . . . we read the absurd hypothe- sis that, ‘if wages rose generally, the price of everything would rise’ ” – the old

Smithian view of course. 27 Marx’s own position refers back to an earlier brief allusion to Ricardo’s “proof ” of the inverse wage-profit relation: “Then he devel- ops a whole theory of wages and profits, and proves that wages and profits rise and fall in inverse ratio to each other, without affecting the relative value of the product” (122). He also noted Ricardo’s related “endeavour to prove” first, that rent payments leave relative values unaffected, and that secondly, capital accumulation − with capital reduced to “accumulated labour” − “has only a pass- ing and fluctuating effect on the relative values determined by the comparative quantity of labour expended on their production.” At the same time Marx touched on Ricardo’s recognition of “the influence that the accumulation of capital and its different aspects (fixed capital and circulating capital), as also the rate of wages, can have on the proportional value of products,” although he did not here elaborate this complexity citing only passages allowing “accidental and temporary deviations” from relative labor values (Ricardo 1951–73, 1: 88). However, in a subsequent anal- ysis of the effect of “strikes and unions” Marx elaborated: “ . . . as the relation of manual labour to fixed capital is not the same in different industries, all the indus- tries which employ a relatively greater mass of fixed capital and fewer workers, will

be forced sooner or later to lower the price of their goods” (MECW 6: 207); should they not do so “their profit will rise above the general rate of profits. . . . But as com- petition always tends to level the rate of profits, those profits which rise above the general rate cannot but be transitory. Thus . . . a general rise in wages will lead, not as M. Proudhon says, to a general increase in prices, but to a partial fall, that is a fall in the current price of the goods that are made chiefly with the help of machines.” 28 All this is consistent with the earlier discussion of profit-rate uniformity assured by actual output flows between industries (above, pp. 198, 202), although the full

27 Senior, Tooke, and J. S. Mill are cited to the effect that the phrase a general price increase when used by economists excluded one commodity, usually money (or labor).

28 That Marx cites specifically a fall in prices upon a wage increase reflects his use of Ricardo’s early editions.

F. The Inverse Wage-Profit Relation 213 adjustment mechanism is not spelled out. Furthermore, Marx plays down the price

effects − as had Ricardo: “the rise and fall of profits and wages express merely the proportion in which capitalists and workers share in the product of a day’s work, without influencing in most instances the price of the product.”

A Ricardian analysis of the Inverse Wage-Profit Relation is also to be found in “Wage Labour and Capital” (1849). It appears in the discussion of “relative” wages in the sense of proportional wages (MECW 9: 218). The proportional wage may fall, even though the real (commodity) wage rises, should the money wage fall less than the price of wage-goods. The Inverse Relation is then formally spelled out as a “general law”: “What, then, is the general law which determines the fall and rise of wages and profit in their reciprocal relation? They stand in inverse ratio to each other. The exchange value of capital [1891: Capital’s share], profit, rises in the same proportion as the exchange value of labour [1891: labour’s share], wages, falls, and vice versa. Profit rises to the extent that wages fall; it falls to the extent that wages rise” (219).

All this reflects Ricardian theory. But one passage is problematic: “Profit can only increase rapidly if the exchange value [1891: price] of labour, if relative wages, decrease just as rapidly. Relative wages can fall although real wages rise simulta- neously with nominal wages, with the money value of labour, if they do not rise, however, in the same proportion as profit” (220). Here “the exchange value of labour” is identified with “relative wages,” which is consistent with the Ricardian view whereby the labor embodied in the wage corresponds with the proportional wage; and that Marx by the “exchange value of labour” (the cost of labor) intended

labor embodied in the wage, is probable. 29 The problem is that, within a Ricardian framework, the nominal (money) wage will decline to reflect the circumstances supposed − a higher profit rate due to a fall in the relative wage – whereas Marx has the nominal wage rising. It is, of course, possible that the foregoing was a slip. However, it may be significant that Marx neither dealt explicitly with the “canon- ical” case of a falling real wage but a rising proportionate (or money) wage and thus a falling profit rate, nor elucidated the constant value of the product allocated between labor and capital. All the features of Ricardian theory may still not yet have been entirely clear to him.

An additional sense is accorded the relative wage-profit relation, namely a grow- ing gap between the psychic pleasures enjoyed by the respective classes, notwith- standing any real-wage increase − an aspect of what has come to be called the “relative immizeration thesis”: “A noticeable increase in wages presupposes a rapid growth of productive capital. The rapid growth of productive capital brings about an equally rapid growth of wealth, luxury, social wants, social enjoyments. Thus, although the enjoyments of the worker have risen, the social satisfaction that they give has fallen in comparison with the increased enjoyments of the capitalist . . . ”

29 On the cost of labor see pp. 207–8, 216. Engels’s “price” is unhelpful.

A “First Draft” of Capital 1847–1849 (216); because “[o]ur desires and pleasures spring from society . . . they are of a

relative nature.” 30 This same theme is elaborated with an emphasis on the “antag- onism” between classes: “Even the most favourable situation for the working class, the most rapid possible growth of capital, however much it may improve the mate- rial existence of the worker, does not remove the antagonism between his interests and the interests of the bourgeoisie, the interests of the capitalist. Profit and wages remain as before in inverse proportion” (220–21). 31