Socialist Viewpoint

The Law that Determines the Rise and Fall of Wages and Profits

We have said: “Wages are not a share of the worker in the commodities produced by him. Wages are that part of already existing commodities with which the capitalist buys a certain amount of productive labor-power.” But the capitalist must replace these wages out of the price for which he sells the product made by the worker; he must so replace it that, as a rule, there remains to him a surplus above the cost of production expended by him, that is, he must get a profit.

The selling price of the commodities produced by the worker is divided, from the point of view of the capitalist, into three parts:

First, the replacement of the price of the raw materials advanced by him, in addition to the replacement of the wear and tear of the tools, machines, and other instruments of labor likewise advanced by him;

Second, the replacement of the wages advanced; and

Third, the surplus leftover—i.e., the profit of the capitalist.

While the first part merely replaces previously existing values, it is evident that the replacement of the wages and the surplus (the profit of capital) are as a whole taken out of the new value, which is produced by the labor of the worker and added to the raw materials. And in this sense we can view wages as well as profit, for the purpose of comparing them with each other, as shares in the product of the worker.

Real wages may remain the same, they may even rise, nevertheless the relative wages may fall. Let us suppose, for instance, that all means of subsistence have fallen 2/3rds in price, while the day’s wages have fallen but 1/3rd—for example, from three to two shillings. Although the worker can now get a greater amount of commodities with these two shillings than he formerly did with three shillings, yet his wages have decreased in proportion to the gain of the capitalist. The profit of the capitalist—the manufacturer’s for instance—has increased one shilling, which means that for a smaller amount of exchange values, which he pays to the worker, the latter must produce a greater amount of exchange values than before. The share of capital in proportion to the share of labor has risen. The distribution of social wealth between capital and labor has become still more unequal. The capitalist commands a greater amount of labor with the same capital. The power of the capitalist class over the working class has grown, the social position of the worker has become worse, has been forced down still another degree below that of the capitalist.

What, then is the general law that determines the rise and fall of wages and profit in their reciprocal relation?

They stand in inverse proportion to each other. The share of (profit) increases in the same proportion in which the share of labor (wages) falls, and vice versa. Profit rises in the same degree in which wages fall; it falls in the same degree in which wages rise.

It might perhaps be argued that the capitalist class can gain by an advantageous exchange of his products with other capitalists, by a rise in the demand for his commodities, whether in consequence of the opening up of new markets, or in consequence of temporarily increased demands in the old market, and so on; that the profit of the capitalist, therefore, may be multiplied by taking advantage of other capitalists, independently of the rise and fall of wages, of the exchange value of labor-power; or that the profit of the capitalist may also rise through improvements in the instruments of labor, new applications of the forces of nature, and so on.

But in the first place it must be admitted that the result remains the same, although brought about in an opposite manner. Profit, indeed, has not risen because wages have fallen, but wages have fallen because profit has risen. With the same amount of another man’s labor the capitalist has bought a larger amount of exchange values without having paid more for the labor on that account—i.e., the work is paid for less in proportion to the net gain which it yields to the capitalist.

In the second place, it must be borne in mind that, despite the fluctuations in the prices of commodities, the average price of every commodity, the proportion in which it exchanges for other commodities, is determined by its cost of production. The acts of overreaching and taking advantage of one another within the capitalist ranks necessarily equalize themselves. The improvements of machinery, the new applications of the forces of nature in the service of production, make it possible to produce in a given period of time, with the same amount of labor and capital, a larger amount of products, but in no wise a larger amount of exchange values. If by the use of the spinning-machine I can furnish twice as much yarn in an hour as before its invention—for instance, 100 pounds instead of 50 pounds—in the long run I receive back, in exchange for this 100 pounds no more commodities than I did before for 50; because the cost of production has fallen by 1/2, or because I can furnish double the product at the same cost.

Finally, in whatsoever proportion the capitalist class, whether of one country or of the entire world-market, distribute the net revenue of production among themselves, the total amount of this net revenue always consists exclusively of the amount by which accumulated labor has been increased from the proceeds of direct labor. This whole amount, therefore, grows in the same proportion in which labor augments capital—i.e., in the same proportion in which profit rises as compared with wages.

Next