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Issue #1767      March 1, 2017


Prices, wages, profits and inflation

This article deals with wages and some factors which determine their level.

The worker sells his/her labour power to the employer in return for wages. Labour power includes the physical ability to work and the technical skills which have been developed in the course of schooling and experience.

In offering their labour power for sale, the worker thereby turns his power to work into a commodity, in much the same way as other commodities are offered for sale in the market place.

The wages paid by the employer are the price the employer pays for the purchase of the worker’s labour power. Like other commodities, the price which the purchaser (the employer) is prepared to pay is influenced by a number of factors.

One of these is supply and demand. If there is full employment and a shortage of labour, individual employers will compete with each other to secure the available workers for their particular employment. They achieve this by offering higher wages.

The employers much prefer the existence of a pool of unemployed so they may use the threat of dismissal to keep wages down. This is the situation now in all the capitalist countries. The fear of getting the sack has already persuaded some workers to accept a policy of wage restraint.

But supply and demand is not the basic factor which determines the level of wages any more than it does for other commodities. It is a secondary factor.

The outcome of the wages struggle between capital and labour is another factor.

The aim of the worker is to improve his living standard and one of the main ways this may be done is by increasing real wages.

The aim of the employer is to increase his profits to the maximum.

The worker and employer, in entering into a relationship in the course of production, have contradictory aims and because the worker receives his wage from the employer and the employer derives his profit from the labour of the worker, a constant conflict rages.

The result of this struggle has some influence on wage levels at any particular time. Well organised and militant workplaces are able to do better than unorganised ones. There are plenty of examples to prove this point.

But this is another secondary factor in the actual determination of the value of wages.

Modern capitalist society requires a pool of millions of people available to do the work of providing raw materials, producing commodities for sale and providing services. If there were merely employers with stacks of money capital and machines but no workers, nothing would get done. (It is worthwhile making the point that capitalists cannot do without workers, but workers can do without capitalists).

Workers are not created by some magic wand – not even by the most sophisticated computer. They are born; they have to be nurtured, trained and educated, kept in good health, housed and so on.

A supply of necessaries are consumed in the process of a person growing up, maintaining life and then, at a certain age, being available for work. The workers’ needs continue during life for his own maintenance and to reproduce his kind. Therefore, the worker has to provide for a family and the reproduction of children.

In our society, these needs are averaged out and for many years they were expressed in what was known as the Basic Wage. This wage was for many years based on the “C Series Index” which recorded the cost of food and groceries, rent of a four- and five-roomed house, clothing for a man, wife and three children, household drapery and hardware, fuel, lighting and some miscellaneous items.

Today, the “C Series Index” has been replaced by the Consumer Price Index (CPI) and is used in much the same way in wage assessment.

A former Chief Judge of the Arbitration Court said in one of his judgements: “On our accepted standards of living, looking at it from the needs point of view only, I regard the present basic wage as adequate for a family unit of three but a meagre existence for a family unit of four.

Another Judge of the Arbitration Court, in an attempt to determine a wage which was said to be “fair and reasonable,” came to the conclusion that it should satisfy “the normal needs of the average employee regarded as a human being in a civilised community.” Note again the reference to needs.

The needs of individuals, of course, change as social standards and expectations change, but these variations do not alter the basic principle by which wages are determined.

As basic human needs do not vary so very much from one individual to another (we can eat only so much, sleep in only one bed, live under only one roof and so on), it might be assumed that wages should be equal or nearly equal. We know this is not so.

Some wage variations in our society have arisen based on skill or academic training and this is reflected in the many campaigns to maintain “relativities” in wages. The supply and demand and class struggle factors have already been mentioned.

But the influence of these factors and the size of wage differences should not be exaggerated.

All workers’ wages are determined fundamentally by their needs but the “wages” of employers, that is the profits made, bear no relationship whatever to the individual needs of the employer. An individual shareholder may have an income of hundreds of thousands of dollars and it may be derived without any work whatsoever.

The whole history of argumentation concerning wage fixation in Australia and all the methods used to assess wages by the various courts and commissions is a living confirmation of Marx’s theory on this question.

It confirms the conclusion reached by Karl Marx that “the value of labouring power is determined by the value of the necessities required to produce develop, maintain, and perpetuate the labouring power”. (Wages, Price and Profit, K Marx, p 34 Progress Publishers)

To put it another way: Wages are the monetary expression of the value of labour power which is determined by the social average of hours required to produce the food, clothing, shelter and so on which are needed to produce and reproduce a worker’s capacity to work.

If the wages of workers are determined in one way and the profits of employers arise in another way, the next question to arise concerns the source of profits. They do not fall from the skies nor are they “earned by the employer as a result of his own work. Readers will probably agree that they are derived from the exploitation of workers.

This is the first of an occasional column on theory and practice.

Next article – Stop the sell-off

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