Financialization and Marx — Pt 1. Do Skilled Workers Own ‘Human Capital’?

The 2009 Review of Radical Political Economics published a paper by Dick Bryan, Randy Martin and Mike Rafferty entitled “Financialization and Marx, Giving Labor and Capital a Financial Makeover.” A friend wants to know my opinion of the paper.

The paper raises many questions about the recent changes in the capitalist system, as well as the relationship between neoclassical marginalist economics and Marxist economic theory. Since the questions raised by Bryan, Martin and Rafferty are of extreme importance if we are to understand the evolution of present-day imperialism, I have decided to examine them here. However, these questions are too complex to deal with in a single reply. I have therefore decided to break my reply into a series of sub-replies that will focus on particular points.

Their paper shows that Bryan, Martin and Rafferty are familiar with Marxist economic theory but in my opinion have not fully understood it. The influence of marginalist ideas is pretty obvious as well. It seems that the marginalist ideas that they were undoubtedly exposed to in their own university studies are getting in the way of their achieving a full understanding of Marx’s economic discoveries. The positive thing is that they are wrestling with Marx and taking him seriously. Perhaps in time they will achieve a full understanding and put the false theories they learned in school completely behind them.

In this reply, I will examine the most important part of Marx’s theory: the sale at its value of the one commodity the workers have to sell—their labor power—to the industrial capitalists, and the consequent production of surplus value.

Their paper indicates that Bryan, Martin and Rafferty have not yet fully understood Marx’s discoveries in this area. (1) Among the questions raised by Bryan, Martin and Rafferty are these: To what extent if at all can labor be considered a form of capital? Exactly what is the relationship between labor and labor power? What exactly did Marx mean by the term commodity capital? Is variable capital a form of commodity capital? And if not, why not?

In this reply, I will focus on these questions. I will also examine and critique the ideas of both marginalist and Marxist economists on the relationship between skilled and unskilled labor. Closely related to this question, though Bryan, Martin and Rafferty don’t directly raise it as such, I will deal with what the bourgeois economists and media call “human capital.” How does the concept of “human capital” relate to Marx’s theory of value and surplus value? Is the concept of human capital compatible with Marxist theory, and if not, why not?

I think that complete clarity is necessary on these questions before we can examine the main question that Bryan, Martin and Rafferty are examining: How does the “financialization” phenomena that has developed with such vigor since the “Volcker Shock” of a generation ago affect the relationships between the main social classes of capitalist society—the capitalist class, the working class and the intermediate class, what Marxists traditionally have called the “petty bourgeoisie.” (2)

“In particular”, Bryan, Martin and Rafferty write in their abstract, “we examine how financialization is re-constituting labor as a form of capital, and giving capital a fluidity which serves to intensify competition.” First, can workers who make their living by selling their labor power for wages and salaries be considered in any sense capitalists?

Many of our readers will reject out of hand any idea that wage or salaried workers as owners of “labor” are “capitalists” in any sense, and correctly so in my opinion. People who have studied neoclassical marginalist economics in school, however, will not find this idea so strange. Indeed, neoclassical marginalist economists have long claimed that all skilled workers are in fact “capitalists” who own what they call “human capital.”

Therefore, in order to clarify the questions under discussion, it is necessary to examine the contrasting theories of Marx on one side and the marginalists—what you will learn if you take a college course in economics—on the other side.

Here we come to the question of skilled versus unskilled labor, a question not raised directly by Bryan, Martin and Rafferty. This question has played an important role in the history of both Marxist economic theory and marginalism over the last century. I have therefore decided to examine both the neoclassical marginalist viewpoint and some contrasting Marxist views on the question in this week’s reply.

Before I do this I want to make the following comment.

“Today,” Bryan, Martin and Rafferty write, “gold is not money. …” Presumably, they mean that with the end of the convertibility of currencies into fixed quantities of gold by the monetary authorities, gold has lost its monetary role and is now “just another commodity.” This is the view of the overwhelming majority of professional economists and shared by many, perhaps most, present-day Marxists.

In the main posts, I explained why in my opinion this view is not logically tenable and cannot be reconciled with Marx’s economic discoveries. It also cannot explain why the ever-changing dollar “price of gold” is featured so prominently in the daily newspapers despite the relatively insignificant role that gold plays in production. Since I have dealt with this question in detail in my main posts, I will not say anything more about it here. Instead, I will refer my readers back to my main posts if they want to pursue this extremely important question further.

Is labor a form of capital?

“To address this dimension of labor-as-capital,” Bryan, Martin and Rafferty write, “we look to Marx’s own categories.” They continue: “For Marx, the key to surplus value could be framed in terms of labor being concurrently two different sorts of capital: commodity capital and variable capital. It is the difference between labor power and labor.”

Bryan, Martin and Rafferty have misunderstood Marx. First, to Marx labor is not a commodity—still less capital—nor does it have value. Workers sell their labor power, not their labor, to the capitalists. Since (abstract) labor is the very substance of value, labor itself has no value. Or as Engels put it somewhere, we can no more talk about the value of labor than we can talk about the temperature of heat. Temperature measures the amount of heat (molecular motion) that an object contains, just as value measures the amount of abstract labor that a given commodity represents. So, it is correct to talk about the value of labor power—a commodity—but it is meaningless to talk about the value of labor.

Therefore, labor is not “concurrently two different sorts of capital: commodity capital and variable capital.” Labor is neither commodity capital nor variable capital. It is not capital at all. Labor power, the ability to work, is a commodity that has a definite value. In the hands of the worker, it is a commodity but not capital. After the worker has sold it to a capitalist, the labor power in the hands of its new owner, the capitalist, is capital. But it is variable capital and not commodity capital.

Why isn’t variable capital a form of commodity capital, when labor power—in the hands of its original owner, the worker—is, after all, a commodity? In order to live, workers must sell their labor power in exchange for a sum of money—a wage. The workers then use this money to purchase the commodities—the means of subsistence—that are necessary to reproduce their labor power and raise the next generation of workers.

The formula for this transaction carried out by the workers is C—M—C. This is the circuit of simple circulation and not the circuit of capital, which is M—C—M’. Workers start with commodities C—their ability to work—and end with commodities of equal value but with a different use value, the last C—the means of subsistence. Since both poles of the exchange C—C have equal value, the workers never get rich, even if they sell their labor power every day—which is very unlikely—of their working life.

Labor power—not labor—becomes capital only after it has been sold to a capitalist. After the labor power of the worker has been sold, that labor power belongs to the capitalist, not the worker. Assuming the labor power is sold to an industrial capitalist—I will deal with the question of the sale of labor power to non-industrial capitalists in my next reply—the labor power is variable capital. However, variable capital is not commodity capital.

We know that industrial capitalists begin with a sum of money. In order to act as industrial capitalists, they must first use their money to purchase the means of production—machinery, raw and auxiliary materials and labor power—on the market. The machines and raw and auxiliary materials are purchased from fellow industrial capitalists, while labor power is purchased from workers. But once the elements of constant capital and variable capital are in their possession, the industrial capitalists do not intend to sell them by throwing them back on the market as commodities. (3)

Instead, their intention is to consume them—productively—that is, to use them to produce surplus value. The surplus value is actually only produced by the variable capital—labor power—but the labor power cannot produce surplus value by itself. It must work with instruments of labor that are in the monopoly possession of the class of capitalists. It is the fact that the workers own no means of production themselves beyond their labor power that forces them to sell their labor power to the capitalists, who monopolize the means of production.

Once both the purchased labor power and the means of production are brought together in an act of production—that is, productively consumed—the industrial capitalists possess a quantity of commodities that represents value, including surplus value, above and beyond the value they started with. Unlike with the instruments of labor, raw and auxiliary materials, and variable capital, the capitalists have no intention of consuming the commodities that have been produced. Instead, in order to actually realize the surplus value—make a profit—they must sell them for a sum of money that is greater than the sum of money they used to produce them. If they cannot find buyers, or if they do not sell them for a sufficient price, they will make no profit, and making profits is the only reason they are in business.

Therefore, Marx referred to the commodities that the industrial capitalists have produced but not yet sold as commodity capital. (4) The industrial capitalists do not sell the commodity labor power. Instead, they consume it. Labor power, therefore, is not a form of commodity capital. To the extent that it is a commodity in the possession of the worker, it is not capital. To the extent it is capital in the possession of the capitalist, it is not a commodity to be sold but instead is an article of (productive) consumption.

Below unless otherwise indicated I will be using direct prices—that is, prices that are directly proportional to labor values, much like Marx used in Volumes I and II of “Capital.” (5) Using any other system of prices—such as prices of production, which equalize the rate of profit among capitals engaged in different lines of production—would only obscure the underlying economic relationships. (For a further explanation of the concept of direct prices, see my transformation problem reply.) Saying that a commodity sells at its direct price is equivalent to saying a commodity sells at its value.

The (bourgeois) economists hold that skilled workers are capitalists

Economists who support the various schools of marginalism claim that skilled workers are capitalists. These economists hold that skilled workers are owners of what they call human capital. This is, perhaps, the traditional “labor as capital” theory. The term “human capital” is today widely used in the media.

As I explained in my reply on the “Austrian School,” the Austrians and other marginalists hold that every person is free to either consume more “goods” in the present or consume fewer “goods” in the present in order to consume more goods in the future. According to marginalist economic theory, we subjectively value current goods more than we value the same goods in the future. Wouldn’t you pay more for a smartphone you receive today as opposed to exactly the same smartphone a year from now?

The marginalist theory of capital

According to the marginalists, a capitalist is a person who prefers to consume fewer goods in the present in favor of consuming more goods in the future. For example, suppose I win the lottery and receive $100,000 free and clear. If I want to, I could go on a big spending spree buying everything I ever wanted, from a new pair of shoes to a new house.

But perhaps I have a thrifty streak. Instead of spending the money, I might decide to invest it in certificates of deposit or some bonds, perhaps with retirement in mind. Many years later when I retire, the accrued interest will enable me to consume many more goods—whether food, clothes, houses, cars, shoes, smartphones, and so on—than I would be able to if I had chosen to spend the $100,000 immediately.

But, the (bourgeois) economists explain, I don’t have to win the lottery, or win the inheritance lottery, to become a capitalist. Suppose I am a young unskilled worker fresh out of high school possessing only my labor (power)—the marginalist make no distinction between labor and labor power—to sell. The economists reason that just like the person who has won $100,000 in the lottery I can make one of two choices. I can either enter the labor market and sell my unskilled labor (power) immediately for the minimum wage—the wage that prevails for unskilled labor—or I can restrict my consumption and get additional education or training with the intention of becoming a skilled worker. Since I am living in a free—capitalist—society, as Milton Friedman put it, I am “free to choose.”

Suppose I choose the second alternative. I decide to continue my education or study a trade. I will have costly education bills—especially in the United States these days with the progressive dismantlement of public education. For a number of years, I will be consuming less than a worker who chose to enter the workforce immediately. But my aim in achieving an education is, at the end of the day, to get a better-paying job and thus consume more goods in the future.

Just like a thrifty lottery winner who chooses to save the $100,000 and receives an interest income, I am freely choosing to consume fewer goods in the present in order to consume more goods in the future. The difference between the goods that I could consume with the wages of an unskilled worker, but which I choose to forgo for now, and the goods that I will later consume as a skilled worker is, our professional economists explain, “interest”—just as much as the interest earned by a lottery winner who saves rather than spends the lottery proceeds.

Since a capitalist is defined by our (bourgeois) economists as a person who earns interest, the skilled worker is just as much a capitalist as a person who has a large inheritance but chooses not to immediately consume it. (6) While the thrifty lottery winner owns capital in the form of interest-bearing bank accounts or bonds, the skilled worker, according to the marginalist economists, is the owner of “human capital.”

Reality check

But—even if our esteemed professional economists have somehow not noticed it—skilled workers still have to work for a living. And in order to do so, they must find a capitalist who is willing to buy their labor power. If the skilled workers do not work—or are unable to sell their labor power through no fault of their own, perhaps because of an ongoing capitalist crisis of overproduction—they will not collect any “interest” at all on their “human capital.”

On the other hand, the money capitalists are under no such compulsion to work. Instead, by simply owning a certain sum of “moneyed capital” in the form of certificates of deposit or bonds, for example, the money capitalists get in proportion to the size of their capital a portion of the collective unpaid labor—surplus value—that the working class is obliged to perform. The money capitalists, like all exploiters throughout history, can only live without working because other people are forced to perform unpaid labor for them. (7)

A problem for Marxist theory

But if the skilled worker is not a capitalist who appropriates surplus value, where does the extra income of the skilled worker as opposed to the unskilled worker come from?

To be honest, this has been a point of contention among Marxist economists for more than a century. One proposed solution to the problem, which I will call the “traditional view,” is that the extra wage of the skilled workers represents the labor and therefore the added value that the teachers or trainers add to the labor power of the students or apprentices. Later on when the students sell their labor power to the industrial capitalists—here I am assuming productive labor that produces surplus value—the value that the teachers add to the labor power gets passed on to the commodities that the enhanced labor power of skilled workers produces. Or as Ernest Mandel, I believe, said somewhere, the skilled worker works with an “extra tool.”

Contradictions in the traditional view

This theory in my mind involves considerable contradictions. First, it’s hard to see how the labor of the teachers that is added to skilled workers’ labor power during the workers’ apprentice or student years can fully account for the extra wages that those workers will earn as skilled workers compared to the wages of unskilled workers. Skilled workers might earn four, five times or 10 times the wages of unskilled workers. Certainly, the skilled workers’ teachers do not perform enough hours of labor teaching the apprentices or students to account for the wage differentials we observe in the real world.

Another contradiction is revealed by the tool analogy. A tool—a hammer, for example—assuming the capitalist mode of production—is a form of constant capital, not variable capital. During its life, a hammer passes its value little by little into the commodities it helps to produce. Eventually, it becomes useless—loses it material use value—at which point it has passed all its value to the commodities it helped produce.

Labor power is different. In order to produce and reproduce their labor power, the workers must consume commodities—products of human labor. The values of these commodities are transferred from the commodities the workers consume—food, clothing, housing and so on—to the workers’ labor power, including the developing labor powers of the next generation of workers. The labor of the workers reproduces the value of the workers’ labor power, that is the values that the workers consume, but unlike constant capital, labor power does not transfer its value to the commodities it helps produce.

If it were otherwise, a considerable amount of the labor power that is employed in industry—any workers who have acquired some skills and earn more than minimum wage—would represent, at least partially, not variable but constant capital.

Does the labor of a housewife add to the value of the labor power of herself, her husband and her children?

Bryan, Martin and Rafferty in their paper observe correctly that “issues of unpaid domestic labor raise the identification of a non-capitalist dimension to the reproduction of labor power. …”

Aren’t women insomuch as they function as housewives exploited? And doesn’t their labor as housewives add to the value of the labor power of their husbands, children and their own labor power as well if they later choose or are forced to get a job of their own? Doesn’t the labor of women in the home produce surplus value, a fact that has been ignored by traditional Marxist theory?

The answer to the first question in my opinion is yes. Women are exploited and do perform unpaid or surplus labor in their role as housewives. But in what sense do women perform surplus—or unpaid—labor for their husbands? Doesn’t the man share his wages with his wife and thus “pay” her for her housework?

Suppose a male worker puts in 40 hours a week. If the rate of surplus value is 100 percent, the male worker brings home in wages 20 hours of labor. If he shares his wage representing 20 hours of labor equally with his wife and children, the woman gets “paid” by the man 10 hours of labor minus what is consumed by the children. Suppose the woman puts in a daily average of 10 hours of housework and childcare seven days a week. (And this is a modest estimate. Recall the saying “a woman’s work is never done.”) That represents a 70-hour workweek for the woman.

Assuming that the woman and her children consume half the results of her own labor and that she shares the rest with the husband, the woman and her children get to retain only 35 hours of her own work. So overall, the woman gets an “income in terms of labor” of 35 hours plus 10 hours that the man provides in shared wages. This comes to 45 labor hours per week of paid labor—including that consumed by the children—plus 25 hours a week of unpaid labor that the woman performs for the man.

This compares to 20 hours a week of unpaid labor that the man performs for his capitalist employer, according to our assumptions. In reality, the amount of unpaid labor that a woman performs is probably greater. For example, are the use values produced by housework really equally shared with the man? What if the rate of surplus value is higher than 100 percent—which it probably is considering the extremely high level of labor productivity that prevails these days—the man will have less than 20 hours of labor to share with his wife and children. In addition, is it realistic to assume that the man shares his wage equally with his wife? Doesn’t he tend to take the lion’s share?

But the unpaid labor that the woman performs for the man does not take the form of surplus value or its money form—profit—including ground rent. Why not?

Housework—labor within the family—does not take the form of value because the exchange of commodities is absent. No exchange, no commodity production. Value in the final analysis is always embodied labor—abstract labor—but the converse is not true. Not all categories of embodied labor take the form of value.

When a woman cooks food for her husband and her children—who possess labor powers in the process of formation—she changes the form of the food—raw material—into another form—a cooked meal. If she was working in a restaurant doing exactly the same thing, she would be adding value to the raw material while producing the final commodity, the cooked meal. And she would be producing surplus value for the industrial capitalist—the owner of the restaurant. But within the family, though she changes the form of the material use value, the value of the food is not increased, because in the context of the home she does not sell the food as a commodity.

Instead, the value of the uncooked food is transferred to her husband’s labor power and to the developing labor powers of her children as well as her own labor power that she may also have to, or choose to, sell. In the event she does sell her labor power to a capitalist, in addition to performing unpaid labor for her husband that does not take the form of surplus value, she performs unpaid labor for a boss—assuming the boss is an industrial capitalist—which does take the form of surplus value.

Therefore under the traditional bourgeois family system, the woman is forced to perform surplus labor for her husband, and very likely on top of that she will be forced to perform surplus labor for a capitalist. The need to perform surplus labor for her husband—and often on top of that the need to perform additional surplus labor for a capitalist—forms the material foundation of the oppression of women.

However, no matter how much a man exploits the labor of his wife within the home, he does not become a capitalist because of this exploitation. Even the most sexist pig of a husband does not appropriate the surplus labor of his wife in the form of profit—surplus value realized in money form. And he cannot accumulate the surplus labor performed by his wife within the home—because it never takes the form of monetary profit—as capital. And all he gets to exploit is the labor of one person—his wife—and perhaps his children as well. (8)

To clarify this point further, suppose the woman is a single worker with no family or husband. She—and a male worker would be in the same position though he would less likely have children to raise—would be forced to perform the labor of preparing meals and doing housework. But because the products of the labor are consumed by the producer of the products herself and no exchange is involved, no value—as opposed to use value—is transferred to the worker’s labor power. The only way that the value—not use value—of the worker’s labor power can be enhanced is through the consumption of commodities that have been produced by the labor of other workers and have been exchanged—sold for money.

Once the worker goes to work producing commodities—or what comes to exactly the same thing, once the industrial capitalist consumes the worker’s labor power—the value embodied in that labor power is consumed, it is destroyed as the worker’s labor power is consumed and disappears.

But as the value of the worker’s labor power is being destroyed, new value is created. First, this value consists of the necessary labor—or necessary value—that replaces the value of the now-consumed labor power. This represents the labor the capitalist actually pays for. In addition, an additional amount of labor must be performed beyond the labor that replaces the value of the worker’s labor power, the surplus labor, which under capitalism takes the form of surplus value. This surplus value, like the necessary labor, forms a portion of the capitalist’s commodity capital.

Complex labor as a multiple of simple labor

Marx described the labor of the skilled worker as complex labor—that is, as simple labor multiplied by a number. For example, an hour of labor of a skilled worker might count for two, three, five or even 10 hours of simple labor.

Suppose that a particular type of skilled labor power performs complex labor over a 40-hour workweek that is equivalent to 80 hours of simple labor. For an industrial capitalist, employing such a skilled worker over a 40-hour workweek is exactly equivalent to employing two unskilled workers—whose labor counts as simple labor—over the same workweek. In both cases, the boss has the same wage bill, and will extract exactly the same amount of surplus value.

An alternative approach

As I explained above if the tool analogy is correct, a large part of the labor power that the industrial capitalists purchase and consume is actually constant and not variable capital. This, I believe, is incorrect. In my opinion, all the value of all the labor power of the skilled worker functions as variable capital once it has been sold to an industrial capitalist—not just the portion that skilled labor power and unskilled labor power have in common.

For this reason, I propose an alternative approach that I think avoids the contradictions that arise with the traditional approach. Instead of starting with simple and complex labor, we have to start with the more fundamental categories of concrete and abstract labor and then derive the categories of simple and complex labor.

We should begin with the reduction of concrete human labor that produces use values to abstract human labor that produces value. Remember, abstract labor is average human labor as such, with all its specific—concrete—features removed. Since concrete labor consists of both skilled and unskilled labor, average human labor is somewhat skilled labor though it has no particular skill. Therefore, an hour of completely unskilled human labor will in general represent less than an hour of abstract human labor.

A labor power that in an hour of concrete labor performs on average an hour of abstract labor can be defined as a simple labor power. Then, highly skilled labor power would represent some multiple of simple labor power, and extremely unskilled labor some fraction of a simple labor power.

If we are dealing with a labor power that in an hour of concrete labor performs labor that represents more than an hour of abstract labor, we multiply it by a number greater than one. For example, if a highly skilled labor power performs four hours’ worth of abstract human labor on average in an hour, we would multiply it by four. Our skilled labor power represents in this case four simple labor powers.

If we are dealing with a labor power that in an hour of concrete labor performs labor that represents less than an hour of abstract labor, we multiply it by a number less than one. For example, if a very unskilled labor power performs in an hour only a half hour worth of abstract human labor on average, we would multiply it by 0.5. Our extremely unskilled labor power represents only half of a simple labor power.

Assuming our particular type of labor power is a more or less average labor power, on the first day of a new job most of us are working with a fractional labor power. It takes a while to “get up to speed.” Generally, as new hires we will receive lower wages than we will receive once we have acquired a certain skill and become at least an average worker working with a simple as opposed to a fractional labor power.

In the case of a skilled labor power, an hour of concrete labor performed by such a labor power might on average represent two hours of abstract labor. Therefore, our skilled or complex labor power is equivalent to two simple labor powers.

Indeed, before the reduction of concrete labor to abstract labor occurs, we don’t have a single commodity labor power at all. Instead, we have different types of concrete labor powers with very different skills, producing very different use values—plumbers and assemblers, for example. These different types of concrete labor powers are no more different quantities of the same commodity than apples and oranges are different quantities of the same fruit. As concrete labor powers, they can no more be quantitatively compared than apples and oranges can be quantitatively compared.

But once the concrete labors of an assembler and a plumber have been reduced to abstract human labor—everything that differentiates the labor of an assembler and a plumber has been left out leaving only what they have in common as human labor—it becomes possible to make quantitative comparisons between these two types of labor powers. That is, we can treat them as different quantities of the same commodity, the commodity labor power. For example, it might turn out that an hour of the concrete labor of a plumber is equivalent in terms of abstract labor to four hours of abstract labor of an assembler.

Abstract labor power

When we refer to the commodity labor power, we are really talking abstractly—that is, leaving out all the things that differentiate the concrete labor power of one worker from another worker—for example, the labor power of a plumber from the labor power of an assembler. That is, we are taking a shortcut. To speak more concretely, an hour of the commodity plumber labor power, according to our assumptions, represents four times the value of an hour of the commodity assembler labor power. To produce a given quantity of the commodity plumber labor power, society must on average perform four times as much (abstract) labor as it does to produce the same quantity of the commodity assembler labor power.

The labor power of the plumber, therefore, is four times more valuable than the labor power of the assembler. The plumber gets to consume four times as many commodities—in terms of value—than the assembler gets to consume. This includes not only the costs of training that the plumber must pay for but also the costs of the articles of subsistence that he—plumbers have traditionally been men—will get to consume throughout his life.

If society—and, of course, we’re talking about capitalist society—is not willing to pay in terms of its labor time the price that is necessary to produce the commodity plumber labor power, there will be few if any plumbers. Society will have to do without the services of plumbers—that is, survive without plumbing systems. Something it will not be able to do for very long!

Suppose that an hour of the labor power of a “semi-skilled” assembly line worker represents simple labor. On average, an hour of concrete labor performed by an assembler will represent an hour of abstract human labor. To produce the labor power of an assembler, on the other hand, society only has to allocate one-quarter of the abstract labor that is necessary to produce the commodity plumber labor power. Or what comes to exactly the same thing, assemblers get to consume in terms of value only a quarter of what plumbers get to consume. Since they consume only a quarter as much of the means of subsistence in terms of value as a plumber gets to consume, only a quarter as much value is transferred to the one commodity assemblers have to sell, the commodity assembler labor power.

To avoid referring to every type of labor power as a separate type of commodity, we instead simply take an average labor power with all its specific features—its combination of skills and so on—left out. We call this a simple labor power. When we deal with labor powers that have values greater than the average—or simple—labor power, we multiply them with a number greater than one. In the case of plumber labor power under our assumptions, we multiply it by the number four. A concrete labor power such as that of a plumber can instead be viewed as simply a multiple of simple labor power.

In the case of a labor power that is less skilled than average, we multiply this labor power by a number less than one. We can call these labor powers fractional labor powers. (9)

Complex labor powers and the production of surplus value

Suppose a plumber working for an industrial capitalist works an eight-hour day. And let’s assume that the rate of surplus value is 100 percent. Half the time the plumber works for himself and half the time for the capitalist. How much surplus value in terms of hours of abstract human labor will the plumber produce in the course of an eight-hour workday? Will it be four hours of surplus value? No.

Suppose an hour of simple labor power—the labor power of an assembler, for example—is worth $5. But an hour of plumber labor power is actually four hours of simple labor. Therefore, in the course of an eight-hour workday, the plumber is selling the equivalent of (8 * 4) = 32 worth of simple labor power to the industrial capitalist. As far as the capitalist is concerned, he is paying for 32 hours of simple labor—the capitalist in his bookkeeping makes no distinction between labor and labor power—not eight hours.

Therefore, the industrial capitalist as he productively consumes the plumber’s labor power is consuming not eight hours of simple labor power but 32 hours of simple labor power—and the rate of surplus value being 100 percent, the industrial capitalist obtains 16 hours in terms of abstract labor of surplus value.

In money terms, the industrial capitalist is paying for 8 * 4 = 32 hours of simple labor. At $5 an hour for simple labor, the industrial capitalist must pay the plumber a wage of 5 * 4 = $20 an hour, or $160 per day. But since the rate of surplus value is 100 percent, the plumber is actually producing $320 of value in money terms. Half of the plumber’s labor—in terms of abstract labor (4 * 4 = 16) is paid for, while half of the plumber’s labor (4 * 4 = 16) represents the unpaid labor, or surplus labor.

So while an assembler who works with only simple labor power will produce four hours’ worth of surplus value for the boss in the course of an average eight-hour day, the plumber will produce 16 hours’ worth of surplus value in the course of an average eight-hour work day.

One point of possible confusion should be cleared up. When we convert hours of concrete labor to abstract labor, we are converting particular types of labor to the average labor with average skills that prevail at a given point in time. If the average skills of the workers increase over time—everything else remaining unchanged—this will not mean that labor in general will be producing more value. If the skills of the workers decline due the replacement of skilled labor by unskilled labor, the fall in the average skill of labor will not mean, all other things remaining the same, that less value will be produced. Abstract human labor is always average labor with average skills that prevail at the time the labor is performed.

If through the class struggle the workers were to win a permanent general rise in wages, all else remaining equal, the value of labor power would increase. However, the value represented by an hour of labor performed by a labor power of average skill but no particular skill would not increase. The value created by an average labor power during an average hour of labor will always be equal to an hour of abstract labor, or what comes to the same thing, an hour of simple labor. It is completely independent of the rate of surplus value.

Therefore, assuming that all commodities including the commodity (simple) labor power sell at their direct prices—that is, sell at their values—the rate of surplus value will be equal in all branches of capitalist industry.

How is complex labor reduced to simple labor through competition?

Suppose for some reason the supply of plumber labor power considerably exceeds the demand. Competition will intensify among plumbers, while competition among the industrial capitalists who purchase the labor power of plumbers will decline. As a result of the unfavorable balance of forces on the labor market, the wages of plumbers will fall below the value, or direct price, of the commodity plumber labor power. Instead of earning four times as much as the wages of an assembler, a plumber will perhaps earn only two times as much. The wage of plumbers according our assumptions will fall to $10 an hour.

Under these conditions, few young workers will want to train as plumbers. If a worker chooses to become an assembler, the worker will be earning the full wage of $5 an hour—if not immediately, within a short time. But to get up to speed as a plumber requires a prolonged apprenticeship program and years of experience. And at the end of the apprenticeship, the now skilled plumber is only earning twice what an assembly worker earns. Not a very attractive deal.

As the older plumbers retire, they will not be replaced by many younger plumbers. Over a period of years, a shortage of plumbers will develop. The balance of forces on the labor market will shift in favor of the sellers of the commodity plumber labor power. At $10 an hour wages, the demand by the industrial capitalists for the labor power of plumbers will steadily grow relative to supply. Plumbers will increasingly be in short supply.

The only way to equalize the supply and demand for the labor power of a plumber, like is the case with any other commodity where demand exceeds supply at prevailing prices, is for the price of plumber labor power to rise. Eventually, these wages will rise above the value, or direct price, of $20 an hour for the commodity plumber labor power. As the shortage of plumbers becomes acute, the wage of plumbers might hit $30 an hour.

Plumbing will now be considered a hot trade. Young workers will be attracted to it. Over a period of years, the number of workers capable of doing the work of a plumber will increase, once again lowering the price of plumber labor power to and in time below the value, or direct price, of an hour of plumber labor power. Therefore, over time the wages of plumbers will fluctuate around an axis of $20 an hour, sometimes exceeding it and sometimes sinking below it.

The same force will operate on the demand side as well. The industrial capitalists will know from experience that for every hour of plumber labor power they employ they can add $20 to the cost price. Normally—on average—for every additional hour of plumber labor power they purchase, their cost price is increased by $20.

Now if due to a superabundance of plumber labor power—a high rate of unemployment among plumbers—they can purchase plumber labor power for only $10 and hour, they will still tend to add $20 an hour for labor, though they are in fact paying only $10 for labor, and $20 on top of that for a “fair profit.”

They will thus realize a temporary super-profit of $30 for every hour of plumber labor power they employ—$20 average profit plus an additional $10 because in fact they are only paying $10 for an hour of plumber labor power that is actually worth $20. The industrial capitalists will therefore be particularly eager to hire plumbers, increasing the demand for the commodity plumber labor power bringing closer the day when the wages of plumbers again rise to $20 an hour or—temporarily—better.

Looking at both the supply side—the workers who choose to train for a particular trade—and the demand side—the tendency of the industrial capitalists to employ skilled labor, as opposed to their normal tendency of finding ways of replacing skilled labor with unskilled labor, when the wages of skilled labor falls below its value—the forces of supply and demand will tend to fix the wages of skilled plumber labor power—or any other type of labor power—so that they are proportional once again to the multiple of simple labor powers they represent.

Here we see the operation of the law of value in the labor market. Over time, the law of value matches the proper quantities of the labor powers of particular types—machinists, plumbers, assemblers, jewelers, carpenters, ditch diggers and so on to the needs of capitalist production.

A feature of the industrial cycle explained

This explains why during the boom phase of the industrial cycle, while there are complaints among the capitalists about labor shortages, a closer examination always shows that these complaints are really about shortages of skilled labor. The exact type of skilled labor that is in short supply varies with each particular industrial cycle. Unskilled labor, however, remains plentiful even at the peak of the boom.

If during booms the supply of skilled labor remained abundant, the wages of skilled workers would fall across the industrial cycle toward the level of unskilled workers. Under these conditions, young workers would have little incentive to acquire skills—particularly these days when getting an education is so expensive! Instead, they would sell their labor powers as soon as they were old enough to work. Over time, skilled workers would die out and skilled labor could not be obtained for any wage.

Therefore, as long as capitalism needs skilled labor, there will be periodic shortages of skilled labor during the boom phases of the industrial cycle, even as high unemployment persists among unskilled workers. Indeed, one of the reasons why workers acquire skills is to be assured of jobs during at least the prosperity phases of the industrial cycle. Unskilled workers are always in constant danger of falling into chronic unemployment, finding themselves unable to obtain jobs during boom times—even when the media is full of complaints by the capitalists about “labor shortages.”

Conclusion

We can see that skilled workers, however privileged they may be relative to unskilled workers, are not in any sense capitalists. Even if they are paid the full value of their complex labor power, they appropriate no surplus value, and unlike a real capitalist can live only by selling their more valuable labor power. Like an unskilled worker, the skilled worker has only one commodity to sell, his or her labor power. The workers receive not a penny of “interest” or surplus value in any form. The claim by the economists and the media that the complex labor possessed by the skilled workers is “human capital” owned by the skilled workers themselves is completely false.

Can workers ever share in the surplus value produced by other workers?

In August 1914, World War I broke out in Europe. The majority of parties of the Second International betrayed their promises to oppose the imperialist war and supported “their” own imperialist governments. The greatest shock was the vote on August 4, 1914, by the Reichstag fraction of the German Social Democratic Party in favor of war credits. The SPD had been the leading party of the Second International and was considered the most advanced in terms of size and organization, its leadership of the trade unions, and its general influence in the working class and grasp of Marxist theory. In the early years of the German Social Democracy, hadn’t Marx himself been their teacher?

Lenin was shocked by the SPD’s betrayal. He had long viewed the SPD as the model for his own party—the Bolsheviks—and viewed himself as a student of the SPD’s leaders. It is said that at first he even believed that the copy of Vorwarts (Forward)—the official organ of the Social Democratic Party of Germany—where he first read about the decision of the party to vote for war credits, was a forgery.

But no forgery was involved. The Social Democrat Party of Germany—the flagship party of the Second International—had in fact capitulated to German imperialism. This ended forever its role as the revolutionary party of the German working class. Lenin was forced to reconsider many aspects of his politics such as above all his belief that the Second International and its member parties were fully adequate to the task of leading the workers of their respective countries to the conquest of power. After August 4, it was clear to Lenin that this was not the case. But what had gone wrong?

As a Marxist, Lenin had a duty to provide a materialist analysis of the betrayal. While the degeneration and treachery of individual leaders can and does occur, a betrayal as widespread as the one that occurred among the Social Democratic parties of the Second International in August 1914 could not be explained in terms of the degeneration of individual leaders. More fundamental social forces were at work. But what were they?

In a series of pamphlets and books written by Lenin over the following years—which included the opening years of the Russian Revolution—Lenin explained that the betrayal was rooted in the fact that the capitalists of the contending imperialist powers were sharing some of the super-profits—remember, a super-profit is a profit above and beyond the average rate of profit—that they were appropriating from other sections of the global working class—especially the working classes of the oppressed countries.

We saw above that the extra wages earned by the skilled workers do not represent any appropriation on their part of the surplus value produced by the working class. Therefore, if Lenin was correct more was involved than the extra wages earned by the complex labor powers of the skilled workers compared to lesser wages earned by the simple or fractional labor powers of the less skilled and unskilled workers. But exactly how can sections of the working class share in the surplus value produced by other sections of the working class? This is a question I will examine in my next reply. I will then be in a position to examine the questions raised by Bryan, Martin and Rafferty.

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1 It wasn’t until around 1857, perhaps stimulated by the economic crisis of that year, that Marx himself fully worked out the question of the difference between labor and labor power, and how surplus value can arise when labor power is sold at its full value. That is, the Marx who wrote such classics as “The Communist Manifesto” and the “Eighteenth Brumaire of Louis Bonaparte,” among other works, was himself unclear on these questions. Therefore, those who are still struggling to fully grasp the epoch-making discoveries of Marx need not be ashamed if they do not get everything right on the first try. None of us, including Marx himself, did either. Speaking for myself, it has been a lifelong struggle to reach whatever degree of mastery that I have achieved in this area.

2 In “The Wealth of Nations,” Adam Smith recognized three classes of capitalist society—the landlords, who live off ground rent; the capitalist class, which lives off profit; and the working class, which lives off wages. Smith ignored the classes that are in between the main classes, or who in their economic functions combined elements of two or more of these classes. He was right to do so. Strictly speaking, there really are only three classes in capitalist society. But individuals often combine elements of membership in all three classes in their economic activities as we will see over the next few weeks. For example, the economic functions of landowners and capitalists, especially in countries like the United States that have no traditional landowning class of feudal origin, are combined under the name “real estate.”

Small business owners in addition to employing a few wage workers often have to work very hard themselves. They are both exploiters and exploited at the same time. We know that many better-paid wage and salaried workers have significant savings in the form of certificates of deposit and stocks and bonds, often in the form of IRAs or through ownership of shares in mutual funds. Yet the interest, dividends and capital appreciation are not nearly enough to support them and their families, forcing them to sell their labor power to capitalists of varying kinds.

There is also the problem of the widespread ownership of tiny plots of land in the form of home ownership that extends in some capitalists countries far into the wage earning—not to speak of salary earning—class.

Therefore the question of the intermediate class—the huge number of people, particularly in the imperialist countries, who are owners of small amounts of capital and tiny amounts of land but at the same time are forced to work hard for a living, or to sell their labor power to various types of capitalists—has tremendous importance for the politics of capitalist society. Indeed, the whole question of political struggle between the working class and the capitalist class for political power comes down to the evolution—socially, economically and politically—of the great mass of people that are not full members of any of the three classes—capitalists, landowners and the working class—but rather find themselves somewhere on the ever-shifting boundaries of the three classes that constitute capitalist society.

3 I am ignoring the case where an industrial capitalist sells his ongoing business to another industrial capitalist, or where the industrial capitalist might sell a part of his productive capital—a certain factory, for example—to another industrial capitalist. These transactions, though they do occur, are not central to the relationship between the workers and the capitalists, or to the origin of surplus value.

4 The industrial capitalist instead of selling his commodities to their final consumer might instead sell them to a commercial capitalist. The commercial—or merchant—capitalist deals in commodity capital, or as is said in English, the commodity capital is the merchant’s “stock in trade.” Just like every industrial capitalist is to some extent a money capitalist because he must begin with a sum of money and end with a greater sum of money, so every industrial capitalist is to some extent a merchant capitalist, because he must deal in the commodity he produces, whether he sells to its final consumer or to a merchant intermediary.

5 The term “direct price” was introduced by Professor Anwar Shaikh of the New School. The direct price of a commodity is directly proportional to the labor value of that commodity. In competition, direct prices tend to be transformed into prices of production that equalize the rate of profit among different capitals. For a detailed discussion of this tendency, see my reply on the “transformation problem.”

6 In general, bourgeois economists try to avoid the terms capitalist and worker. They prefer to dissolve the basic economic classes into “households,” a term that includes all the classes of capitalist society. But if you press them, they would say a capitalist is a person who lives off interest, including the skilled worker, who is the owner of “human capital.”

7 By money capitalist, I mean the owners of large interest-bearing bank accounts, stocks—stock owners who own only a tiny percentage of a business and can exercise no control over it—and bonds, who live off interest and dividends, as opposed to the major owners of ongoing industrial and commercial enterprises. The bourgeois economists would claim that such owners are not only capitalists but also “entrepreneurs” who earn their income by collecting either the wages of superintendence or producing profits through their risk-taking and innovations.

8 The ideal solution is for the women and men to share housework. This involves men learning skills such as cooking that the traditional bourgeois family did not encourage men to learn. In Cuba, the ruling Communist party and the government are encouraging men to share the housework, which in pre-revolutionary Cuba like in other capitalist countries was performed by women alone. Progress is certainly being made, but of course such old traditions rooted in the final analysis in the disintegration of the old primitive communist community cannot be completely overcome. A full solution will have to await the conquest of political power by the working class in all—especially the industrially advanced—capitalist countries, a radical reduction in the workday, and the introduction of advanced automation into housework.

9 Marx assumed that as capitalism developed capitalist production would replace skilled labor with unskilled labor, bringing things closer to the point where most labor power would approximate simple labor power. The apologists of capitalism claim that on the contrary skilled labor is increasingly driving out unskilled labor. They blame the problem of persistent mass unemployment on the workers themselves who lack the necessary skills. Harry Braverman in his book “Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century,” however, challenged the widespread claim that skilled labor is increasingly replacing unskilled labor. Instead, he held that capitalism is marked by an increasing “de-skilling” of labor, much as Marx predicted.