Wages, profits and prices
The
standard discourse on inflation states that when demand exceeds
supply, prices rise. Now this sounds logical when applied to some
limited resources, but over the whole gamut of spending, where
alternatives are abundant, the standard model is far less convincing.
The other explanation of inflation is that rising wages, obtained by
social struggle, oblige employers to raise the price of their
products to maintain their profit margins. Historically, rising wages
and prices often coincide, whereas inflation provoked by insufficient
supply only seems to concern raw materials, for example the crude oil
crisis in the 1970s, or the excessive printing of money, as in the
“Weimar” Republic and Robert Mugabe’s Zimbabwe.
If
wages go up profits must fall, unless prices go up or productivity
increases. If the same labour produces more value, it can partake in
this supplement without reducing profits. In manufacturing, increased
productivity usually means increased investments for raw materials
and energy and sometimes for more expensive machines and buildings,
so a proportionate profit would go up accordingly. But the increased
production should allow a wage increase, if the extra value is not
absorbed by profits, or annulled by price competition on the market.
Supposing M is the wear and tear of machines and buildings, I is the
input of raw or intermediary goods and energy, W is wages, P is
profit at 20% of expenses (M+I+W) and V is the market value produced.
M
I W P V
100
200 200 100 = 600
Plus
10% in productivity
110
220 220 110 = 660
Or
with price competition cutting wages
11O
220 200 106 = 636
But
if the market value is not reduced by competition and if wages do not
rise
110
220 200 130 = 660
In
this case, profits rise from 20% to 24.5%, an increase of 22.5%. So
that a 10% increase in labour’s productivity can lead to a 22.5%
increase in profits.
When
productivity is increasing, wages and profits can also increase
without causing inflation. More is being made at the same unitary
price. Productivity increased substantially after WW2, when just
about everything was being motorised, and the increased produce was
shared by capital and labour because unions were still strong. By the
1970s those new technologies were in place and productivity
stagnated. This was when wages and prices went into an ascending
spiral, and when wages got all the blame. They have stayed unchanged
in real terms ever since. In the 1990s there was a new burst of
productivity driven by the digital revolution. But this time weak
unions were unable to obtain a share for labour. This meant that
profits and the accumulation of wealth could grow unhindered. About
the same time, developed nations started to move their manufacturing
abroad, to places where the cost of labour was low and regulations
all but inexistent. This meant that workers lost their stable factory
jobs and had to make do with the precariousness of self-employment or
part-time and agency jobs. With the new millennium the social divide
between the immensely rich and the working poor was approaching the
hay day of Robber Barons a century earlier, with Bill Gates playing
Andrew Carnegie, Warren Buffet as John Pierpont Morgan, etc.
Digital
technology increased productivity in manufacturing and in some
services, while static wages meant the increase went to profits. But
profits are paid with debt, so debts grew accordingly (1). Then the
effects of the new technology began to taper off. The instantaneous
24/7 world of internet, mobiles and robots could not be surpassed.
Productivity stopped growing, as did the profits it generated. This
slowdown in growth was a serious setback for debts, which are no more
than the promise of future incomes. Past debts can be paid more
easily when incomes are growing than when incomes are static or
shrinking. To keep the ball rolling, more debts were incurred to pay
off old debts and their interest, and more still by households
wishing to maintain the illusion of a better life, and by governments
facing the rising costs of ageing populations, security, defence and
climatic disasters. Then, after the fall of Lehman Brothers, came the
Big Bailout of quantitative easing, a massive buying of debts by
central banks. This new money did not go to help debtors, except
governments who saw the interest they were charged melt to almost
nothing. The cash went to creditors who unloaded old, somewhat
doubtful debts they were holding, and proceeded to speculate on
stocks and real estate. Flooding a market with cash is inflationary,
but quantitative easing did not go to hard up consumers, it went to
overreached lenders who used it to inflate the price of equity, to
expand a bubble that is ready to burst (2).
Labour’s
timeless struggle to get a fairer share of added value was nullified
by inflation in the 1970s, and then bludgeoned by Thatcher (and
Blair), Reagan (and Clinton), and their market ideology. And the
part-time, no-time working conditions have made organising harder.
But, as Rosa Luxemburg repeated time and again (3), social struggle
over working conditions, wages and civil rights is not an end in
itself. It is a means by which the working class can learn, flex its
muscles and ultimately realise that it can master its destiny.
Marching, striking, petitioning may gain incremental advances,
quickly grasped back, but they can be no more than a prelude to the
overthrow of capitalism. A hundred years ago, a systemic change
brought about by the people seemed quite conceivable. The last
absolute monarchs were being replaced by republics, so why not a step
further to a social commonweal. It was not to be. War set worker
against worker, and the rule of property was maintained by the
collusion of private and state ownership, corporations and
administrations hand in hand in a one or two party system of
government.
The
ruling class managed to keep its wealth and dominion, but profit
driven capitalism has its inherent contradiction that comes to the
fore periodically, when debt cycles coincide in their downturns.
Something of the sort is imminent, and central banks may not be able
to jump to the rescue with the same alacrity they manifested ten
years ago. And if they do not save global finance from its next
habitual breakdown, the resulting situation is hard to imagine. Janet
Yellen, Mario Draghi, Zhou Xiaochuan and Haruhiko Kuroda have more
power to make or break the world than all the planet’s
commanders-in-chief. But that power, just like the power of military
engagement, is not unlimited. Resembling magicians, central bankers
have pulled out of their hats trillions in fresh money. They may not
have the means to do it again on an even larger scale.
And
Rosa Luxemburg:
2.
The time is ripe and it could happen this year.
3.
Notably in Reform or Revolution (1898)
“If
democracy has become superfluous or annoying to the bourgeoisie, it
is on the contrary necessary and indispensable to the working class.
It is necessary to the working class because it creates the political
forms (autonomous administration, electoral rights, etc.) which will
serve the proletariat as fulcrums in its task of transforming
bourgeois society. Democracy is indispensable to the working class
because only through the exercise of its democratic rights, in the
struggle for democracy, can the proletariat become aware of its class
interests and its historic task.”
And
Karl Marx in 1865
Chapter
XIV, second to last paragraph
“These
few hints will suffice to show that the very development of modern
industry must progressively turn the scale in favour of the
capitalist against the working man, and that consequently the general
tendency of capitalistic production is not to raise, but to sink the
average standard of wages, or to push the value
of labour
more or less to its minimum
limit.
Such being the tendency of things
in this system, is this saying that the working class ought to
renounce their resistance against the encroachments of capital, and
abandon their attempts at making the best of the occasional chances
for their temporary improvement? If they did, they would be degraded
to one level mass of broken wretches past salvation. I think I have
shown that their struggles for the standard of wages are incidents
inseparable from the whole wages system, that in 99 cases out of 100
their efforts at raising wages are only efforts at maintaining the
given value of labour, and that the necessity of debating their price
with the capitalist is inherent to their condition of having to sell
themselves as commodities. By cowardly giving way in their everyday
conflict with capital, they would certainly disqualify themselves for
the initiating of any larger movement.”
posted by le Lézard at 2:10 AM
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