Three Books on Marxist Political Economy (Pt 13)

The value of labor power

The value of labor power is determined by the value of the means of subsistence workers must consume to reproduce their labor power. This includes the developing labor powers of their children, who in time will replace them on the labor market. At the minimum, the means of subsistence must enable the workers to live and raise their children in the biological sense.

Like all commodities, means of subsistence have three values. One is their use values necessary for the reproduction of human labor power. Among these are food, shelter and clothing. Second is the amount of (abstract) labor, measured in some unit of time, necessary under the prevailing conditions of production to produce the means of subsistence. Finally, the commodities that go into the value of labor power have a value form or money price, called the wage.

Regardless of the epoch, there is always a quantity of the means of subsistence below which human life cannot be sustained. As we saw last month, industrial capitalists operating in southern India can pay a wage so low that their workers will be unable to buy warm clothing and winter heating while still expecting them to survive biologically. However, industrial capitalists operating in Siberia, Russia, must pay a wage sufficient to allow their workers to purchase a winter coat and pay for heating. Otherwise, the workers will perish.

Even if workers are barely able to survive biologically, they might still not be able to produce children and raise the next generation of workers. So the biologically determined minimum wage must in addition cover the costs of bearing and raising children. These factors establish a level of wages below which the real wage cannot fall for any extended period of time.

If wages were to fall below the level necessary to buy food, the working class would be extinct within a few weeks, and so would the capitalist mode of production. Without workers, surplus value cannot be produced, and without the production of surplus value, there can be no profit, and without profit there can be no capitalism.

If bosses paid the workers just enough to maintain the workers’ lives but not enough to raise the next generation of workers, the number of available workers would progressively decline, which would also lead to the extinction of the capitalist mode of production. This biologically determined minimum wage is the level to which capital always attempts to depress the actual wage. In the absence of counter-pressure from the side of the workers, the biologically minimum wage will constitute the actual wage. (1)

Currency money wage versus golden money wage

The distinction is often made between money wages and real wages. As long as the gold standard prevailed, wages defined in terms of both legal-tender currency and golden wages were identical. Assuming a gold standard, the money wage refers to the quantity of gold that the medium in which workers are paid in exchange for a definite quantity labor power (measured in some unit of time) represents. For example, $15 an hour (2).

However, under the paper money systems that prevail today the movement of money wages defined in gold bullion — money material — and in terms of currency units — dollars, euros, yen, yuan, rupees, rubles, and so on — can move in different directions. So under today’s U.S. dollar-centered international monetary system, it is crucial to distinguish between golden wages (defined here as wages measured directly in some unit of weight of gold) and wages paid in legal-tender currency.

The recent crisis involving Greece and the European Union brought out the importance of distinguishing between golden wages and currency wages. During this crisis, many economists complained that under the euro system Greece can no longer devalue its currency against the German currency like it could in the past. Germany and Greece now have the same legal-tender currency, the euro. At any point in time, the euro represents exactly the same quantity of gold, whether in Greece or in Germany.

During the crisis, certain economists advocated a so-called Grexit, or Greek exit from the European Union and the eurozone. (3) If this proposal had been carried out, Greece would have reestablished the Greek national currency, called the drachma. The drachma is named after the silver coins used as currency in ancient Greece (4).

With Greece running a balance of trade and payments deficit with the remaining countries of the eurozone, the new drachma would have been expected to fall in value against the euro. Assuming that the value of the euro remained more or less unchanged against gold, the wages of Greek workers would have fallen as the rate of exchange between the drachma and the euro dropped, whether measured in euros, U.S. dollars or gold.

‘Internal devaluation’

The economists who supported Grexit also argued that under the current euro system the only way Greek industry could be made competitive would be through what they called an “internal devaluation.” What was this “internal devaluation”? It is simply old-fashioned wage cutting where wages are cut in terms of the legal-tender paper money used in Greece. In Greece under the euro system, the legal-tender currency is the euro. So the secret of what the economists mean by devaluation is out.

When bourgeois economists advocate “devaluation” of the currency, the devaluation is only a means to an end. The end is the devaluation of the one commodity the workers have to sell, the commodity labor power. Very often, trade unions in countries facing balance-of-trade deficits complain that the currency is “overvalued” and should be devalued. But as we see, the whole point of devaluing a currency is to devalue labor power. Is it really the job of the trade unions to advocate the devaluation of their members’ labor power?

Measuring and comparing real wages

Unlike the capitalists, who are interested in accumulating capital measured in terms of gold bullion, workers want to defend and if possible raise their standard of living. The standard of living is the real wage of the workers, defined as the quantity of use values of the commodities that workers can purchase with their money wage.

While the value of labor power, the golden money wage, and the currency money wage can be compared exactly — hours of labor for the value wage; grams or troy ounces of gold for the golden wage; and dollars, euros, yen, yuan, rubles, rupees and so on for the currency money wage — the same is not true of the real wage.

Only in neo-Ricardian corn models where it is assumed that workers are paid in one commodity of a single use value and quality — corn — can real wages be compared quantitatively with one another. This is true whether we compare the real wages of workers in different countries at an identical moment in time or the wages of workers in the same country in different epochs.

The difficulties in comparing real wages of workers is further increased by the fact that different workers will select different baskets of use values as they spend their money wages. This is partially a matter of personal taste. But it also reflects the different needs and fashions of the sexes, the stage in the life cycle of a particular worker, and not least the climate in which the particular worker happens to live, as we saw in the case of southern Indian versus Siberian workers.

We encounter the same difficulty when comparing real wages over time. Today, a smartphone is a necessity for many workers. Yet, a little more than a decade ago smartphones did not exist. If we want to compare the real wages of a London worker in the days of Marx and Engels — let’s say 1850, about the time Marx took up residence in London and Engels in Manchester — with a London worker of the year 2018, we have to remember that in 1850 not only were there no smartphones, there were no phones of any kind. Nor were there radios, TVs, electric fans, air conditioners, automobiles, airplanes, Internet access, personal computers, tablet computers, and other devices. While the market basket of commodities of London workers of 1850 and their counterparts in 2018 had to include such basics as food, clothing and shelter, those items available on the market in 1850 were hardly identical with those on the market in 2018.

In contrast, we can make exact comparisons of golden wages in 1850 and 2018 in terms of gold bullion. A troy ounce of gold bullion in 1850 is identical with a troy ounce of gold bullion in 2018. In principle, we can also make an exact comparison in terms of the value of a London worker’s wage in 1850 and 2017-18. All we have to do is compare the value — quantity of average human labor — represented by the gold value of the media in which the workers were paid in 1850 compared with the gold value of the media in which London workers are paid in 2017-18.

We can also compare wages in terms of, for example, pounds sterling (as the legal-tender currency in Britain in both 1850 and 2017-18), though this is rather pointless. The reason is that the British pound was repeatedly and drastically devalued in the course of the 20th century. Still, apologists for capitalism will sometimes give what appears to be shockingly low dollar or pound wages — like a dollar a day for the wages in the year 1900, for example. They then triumphantly compare those wages to today’s daily dollar wages — for example, $120 (5), pretending that a “dollar” or “pound” in 1850 somehow represents the same amount of money in 1850 and 2018.

This is often done to emphasize how much capitalism has “improved” the lives of the workers. This method of comparing wages in different epochs by using the same official currency units is equivalent to comparing the wages of Japanese workers and U.S. workers by quoting the wages of Japanese workers in yen and U.S. workers in dollars without bothering to convert the respective wages into units of the same currency.

The mythical currency of unchanging purchasing power

Bourgeois statisticians will sometimes compare the wages of workers in some earlier epoch — the 1850s, for example — and the workers of today in terms of pounds or dollars of “constant purchasing power.” However, if it were possible to go back in a time machine to 1850s London or New York — even if you brought with you all the gold that had been mined and refined since the beginning of the human species minted into legal-tender British sovereigns (legal-tender gold pounds), you would not be able to purchase a radio, TV, automobile, computer, or smartphone or buy a plane ticket to New York. Commodities with these particular use values would be found nowhere on the 1850s market.

Therefore, there is a huge amount of subjectivity when comparing real wages in terms of dollars or pounds of constant purchasing power between different epochs. Needless to say, the apologists for capitalism can take full advantage of these subjective factors when they estimate wages paid in imaginary currencies of “constant purchasing power” between different epochs.

What can be compared with mathematical exactitude is the rate of surplus value in the 1850s and 2018. An hour of human labor as such — abstract human labor — is an hour of human labor as such whether in 1850 or in 2018.

Since the rate of surplus value is simply the ratio of unpaid human labor that the workers must perform for the bosses free of charge relative to the labor that the bosses have — or rather promised — to pay for, comparison is perfectly possible between different epochs — for example, London workers in 2018 compared to London workers in 1850.

To do this, we don’t have to invent impossible currencies of constant purchasing power across epochs. And it so happens that the rate of surplus value is a ratio between two numbers that measure the real evolution of the relationship between the two main social classes of modern society.

Time wages versus piecework

Wages take two main forms: time wages and piecework. In the case of time wages, workers sell a certain quantity of labor power in exchange for a definite sum of money — for example, $15 an hour. While time wages are presented as the selling of a quantity of “labor” by the worker to the boss, piecework is presented as the selling to the boss of a definite product of the worker’s labor — the piece.

However, since the worker owns none of the means of production, raw materials, the “piece” itself, or even the worker’s own labor power — that labor power is sold before the worker performs any labor — the worker cannot really sell to the boss a product that the boss, not the worker, already owns. Wherever feasible, the industrial capitalists prefer piecework to time wages.

Piecework is feasible in garment shops and machine and sheet metal shops where there are no assembly lines and the mode of production retains an individual character.

Assembly line labor, on the other hand, is generally not conducive to piece work. For example, on an auto assembly line no individual worker produces an individual automobile. Instead, the emerging auto is a product of the collective labor of all the workers on the line, not to speak of the labor that went into producing the raw materials and machinery used.

If the workers are to exercise any control over the pace of work, they must do so collectively through their union, assuming they have union protection. For example, the union may have the right to halt the line if it is going so fast that the workers suffer serious physical or mental damage as they attempt to keep up.

Anybody who has ever had any type of job, even office work, soon discovers that the supervisor is always demanding that you work faster. If, for example, you ever worked in a machine or sheet metal establishment, you soon discover that your fellow workers are putting pressure on you to work slower. If you are working “too fast,” your fellow workers tell you “to slow down.”

The workers in the shop know full well that if an individual worker works faster than the other workers, all the workers will be pressured by the boss to work faster. Needless to say, the industrial capitalist who owns the shop is not happy with the workers’ attitude. He has, after all, purchased their labor power and wants to get the greatest use value possible out of this purchased commodity. And remember, the use value for the industrial capitalist who has purchased the workers’ labor power is to extract as much surplus value — unpaid labor — as possible.

You are working on my time — he means I own the labor power that you have sold to me and I intend to make full use of it. That is why the bosses’ slogan — or his agent the shop foreman’s demand — is always work faster.

The boss hopes that every hour of labor his workers perform will produce more commodities than what the workers employed by other bosses in the same line of work are producing. Your vampire-like boss is indeed out to suck as much “blood” — labor — out of you as possible. What your fellow workers are telling you when they say “slow down” is to save your strength and therefore their strength, even though it means that the boss will extract less surplus value out of you and therefore make a lower rate of profit. This is the class struggle at the most basic level.

Piecework, the bosses’ weapon

The bosses if they possibly can will do everything possible to break up the natural solidarity among the workers. The bosses’ greatest weapon is piecework. By paying workers by the product — pieces they produce — instead of the time they “are on the clock,” the desire of the workers to maximize their individual wage is used to break up the workers’ natural solidarity. To “speed up” the workers further, all the boss has to do is lower the price paid for each piece. This forces the workers to work harder to earn the same wage in a given amount of time as before. In this way, the workers’ shop floor “collective” is broken up into individual workers competing with each other for who can produce the most “pieces” in a given unit of time.

Therefore, wherever it is feasible, the bosses prefer piecework over time wages. The trade unions, in contrast, strive to force the boss to accept time wages in place of piecework wherever the balance of forces between the trade union and the bosses allows it.

The moral dimension of the value of labor power

In addition, the capitalists as a rule have to pay the workers an additional sum of money that allows them to buy commodities beyond the bare biological minimum. The struggle between the capitalists and the workers over wages is actually over how great this moral addition to the wage will be. Over time, workers come to consider this additional wage, though not absolutely necessary for their biological survival, a necessary part of their accustomed standard of living that must be defended against attempted inroads by the bosses.

As new types of commodities are invented and appear on the market, the workers succeed, depending as always on the relationship between the sellers and buyers of labor power and the degree of organization of the workers, in adding the value of these commodities to the value of their labor power. In this way, the workers, as Marx put it somewhere, are able to participate in the progress of civilization.

If the bosses offer wages below the level that includes the moral addition to the biologically necessary real wage, the workers will refuse to sell their labor power to the bosses at the going wage. The bosses then complain about a “shortage of labor” and “high turnover” forcing them to offer higher wages to attract and keep “competent” workers.

These phenomena manifest themselves during the “boom” phase of the industrial cycle, the phase of the cycle when workers are best positioned to win the full value of their labor power. This is why it is important that workers use the favorable stage of the industrial cycle — such as we are experiencing in late 2017 throughout the capitalist world when these lines are being written — not only to defend the “moral addition” to the value of their labor power but to increase it so they can afford to purchase the new or improved commodities that are being made available through the “progress of civilization.”

The size of this extra, “moral” dimension to the value of labor power in a given country depends on the previous class struggles and the history and origins of the country. A peasant country that is going through a process of rapid capitalist industrialization will have as a rule a far lower “moral” addition to the purely subsistence wage than countries that have been highly industrialized for a long time, with a consequent history of workers’ parties and trade union struggles. Let’s now examine the evolution of the value of labor power in countries with different origins and histories.

White colonies

White colonies refer to countries like the U.S., Canada and Australia that were thinly populated when the European colonists first arrived. Israel also has many of the features of a white colony. In these countries, European colonists succeeded in either wiping out or driving into reservations the native populations. In what was to become the United States, the labor shortage that European colonists faced was alleviated by the importation of kidnapped Africans, who were turned into chattel slaves.

In the U.S. South, where the climate made large-scale plantation agriculture possible, slavery put down deep roots in the mode of production. But widespread use of chattel slaves in production was not practical in the North, where the long, severe winters were not compatible with plantation agriculture. Nevertheless, legal slavery — for people not convicted of a crime — continued in the U.S. North until the early 19th century. Unlike in the South, slavery in the North did not sink deep roots in the mode of production. As a result of its origins as a white colony and the heritage of chattel slavery, the political development of the U.S. working class continues to be retarded to this day. (6)

The European colonists who were obliged to sell their labor power in colonial and post-colonial America and the other white colonies faced a far more favorable situation on the labor market than the workers of Britain and continental Europe. Due to the still small size of the white colonial population in the white colonies, the quantity of labor power being offered was limited, which favored the sellers of the commodity labor power. Related to this was the fact that much of the land stolen from the native peoples was either free for the whites or very cheap. This enabled enterprising white workers to become independent farmers who owned their own land and other means of production.

The formation of a hereditary proletariat was slowed down and a petite-bourgeois consciousness fostered even among those who remained wage workers throughout their lives. In the United States, Australia and Canada, there remained for several centuries many possible ways of buying land cheap and then selling later at a large profit as capitalism continued to develop. In the western United States, these conditions persisted well into the 20th century.

For example, if in 1970 a young couple bought a house for several tens of thousands of dollars in what was to become Silicon Valley and built up their equity in the home — especially in the land included with it — it might be sold for a million or more dollars today.

This sort of situation does not encourage the development of proletarian class consciousness. There is undoubtedly a relationship between the disappearance of cheap land and the current upsurge in the socialist movement in the U.S.

The existence of white colonies where the moral element added to the value of labor power was relatively high and where cheap land was available to European immigrants — with the potential of appreciating sharply in value (7) — served as a kind of safety valve for the European working-class population. European workers could always immigrate to the United States where the “streets were paved with gold.” If conditions got too bad in Europe — which they frequently did — workers could always immigrate to America.

As a result, the growth of socialist class conscious among the European working class was also retarded by the existence of the “white colonies” — just like the growth of revolutionary ideas among Jewish workers in early 20th-century Europe was hindered by the presence of the Zionist movement with its perspective of colonizing Palestine with white European Jewish workers. The result of this emigration was that the “moral element” added to the biological subsistence level of wages was much higher in nations that originated as white colonies.

As industrial capitalism developed in the United States, American industrial capitalists often found it profitable to use machinery manufactured in Britain that was also utilized by the British industrial capitalists. The reason for this is that industrial capitalists are not interested in minimizing the quantity of labor used to produce a commodity of a given use value and quality. Instead, they strive to minimize the quantity of labor they have to pay for while maximizing the quantity of labor — surplus value — that they do not pay for.

On average, industrial capitalists have to pay the entire value of the commodities that constitute the constant capital. The cost price — which is the actual “cost of production” that industrial capitalists are always striving to reduce — is the sum of the money price of the constant capital whose value is transferred to the commodity that the industrial capitalists produce plus the price of the labor power that they must purchase before they can produce their commodities.

The cost price can be reduced by either reducing the quantity of labor power the capitalists purchase, reducing the price they pay for a given quantity of labor power, reducing the cost of constant capital they purchase, or reducing the quantity of labor power that they must purchase by replacing workers with machinery. The industrial capitalists will be obliged to increase the quantity of constant capital that they use to produce a given commodity if the extra constant capital the machine represents enables them to more than make up for the increased cost by reducing their need for labor power.

Suppose the industrial capitalists in a former white colony — the United States, for instance — where the price ( and value) of labor power is relatively high incur a cost of $50 in constant capital and $50 in variable capital, the total cost price coming to $100 to produce a given commodity with a given use value and quality. Suppose a new more powerful machine is invented that if used by our industrial capitalists will mean they will now incur a cost of $60 in constant capital rather than the $50 they spent on constant capital before. However, the machine enables them to reduce “labor costs” — the variable capital — by 30 percent. Instead of spending $50 “on labor per commodity” as before, they now only have to spend $35.

The sum of $60 and $35 adds up to a cost price of $95, a reduced “cost of production” of $5 per unit. So under the pressure of competition, which obliges them to reduce their “production costs” as much as possible, the industrial capitalists are obliged to purchase the new method of production.

Suppose in another country — let’s assume Britain — the value of labor power is half its value in the United States. Before the machine is invented, the cost price of a British industrial capitalist producing the same type of commodity with the same quality comes to $50 constant capital plus $25 spent on labor power, for a cost price of $75. The British capitalists’ cost price is cheaper not because they are producing the commodity with less labor but rather with less paid labor.

Indeed, the only way the capitalists in the United States can compete with our British capitalists is by maintaining protective tariffs that artificially add to the costs of the commodities produced in Britain but sold in the U.S.

The early U.S. industrial capitalists and their champions among the economists, such as Henry Carey (1793-1879), were enemies of “free trade” and strong supporters of protection. But what will happen if our British capitalists with much lower labor costs substitute the new machine that our U.S. capitalists have adopted.

If they substitute the new machine for labor power, they will be able to reduce their “labor costs” by 30 percent, just like is the case with their U.S. counterparts. Instead of paying $25 for labor, now they will pay only $17.50. Their total cost price will come to $60 constant capital plus $17.50 for labor, or $77.50. But notice that the new machine that reduces the cost price for our “Yankee” capitalists actually increases it for our British capitalists, from $75 to $77.50. Our British industrial capitalists cannot afford to purchase the new machine because, unlike their U.S. counterparts, the new machine raises their cost price making them less competitive.

Suppose our industrious “Yankee” capitalists now invent a machine of their own. Let’s assume that the constant capital portion of the cost price will rise to $70 but it will reduce the variable capital portion by 90 percent, from $25 to $2.50. Once the new machine is installed, the yanks’ cost price will be $70 + $2.50, which comes to $72.50. Now that the “Yankees” are so far ahead of the British in terms of technology, the British cannot keep up. The U.S. industrial capitalists can now undersell the British with a cost price of $72.50 while the British industrial capitalists with their old technology are stuck with a cost price of $75. It is now the British who either have to raise their own protective tariffs or surrender the market to the industrious yanks now underselling them.

This is exactly what happened in the course of the industrial competition between Britain and much of Europe during the 19th and the first part of the 20th century. The capitalists of the United States, spurred on by the higher moral element added to the value of labor power due to the U.S.’s white colony origins, achieved a productivity of labor that was superior to Great Britain’s and indeed any other country in the world. Eventually, this enabled the U.S. to undersell its British and other European rivals despite its “high labor costs.” What this means in terms of value theory will be examined next month.

After 1945, the cost price of U.S. industry was so low relative to Europe that the United States was able to shift increasingly to “free trade” and begin to dismantle its historically high tariff walls. These conditions shaped an industrial working class that was often very militant on economic questions but very divided along racial lines and very conservative — especially the white workers — politically. As a consequence, the U.S. was able to become the center of a world empire after 1945 while facing very little opposition from the organized working class.

Countries based on irrigation agriculture

Now let’s examine a third type of country, the countries that originated not as white colonies or out of tribal-feudal societies such as Britain, France and Germany, but rather out of pre-capitalist empires based on irrigation agriculture. (8) In pre-capitalist times, it was not the countries of Europe but India and China based on irrigation agriculture that became the global centers of both agricultural and non-agricultural — craft — production.

The overwhelmingly peasant populations of these countries was very large relative to both European and other pre-capitalist countries. However, the exceptional productivity of agriculture made it possible for a higher proportion of the population to engage in non-agricultural production compared to other pre-capitalist countries. This is what enabled India and China to become the global centers of both agricultural and non-agricultural commodity production.

Columbus “discovered America” not because he and his financiers were interested in exploration for its own sake but because they were looking for a new source of gold — money material — for an increasingly money-starved western European economy, as well as fresh sources of revenue for Spain’s royal treasury. The western European economies were beginning to expand rapidly but were running into a growing shortage of money material. But neither Columbus nor the Spanish government of King Ferdinand and Queen Isabella knew that the Americas with their huge quantities of gold and silver even existed.

Therefore, what Columbus and Ferdinand and Isabella were really searching for was a faster and cheaper way of accessing the markets of Asia with their huge gold and silver hoards. These hoards had been built up over centuries of trade, since India and China had been during and even before the European Middle Ages the leading centers of global commodity production. Despite the huge accumulation of money material — potential money capital — in these countries, the lack of a proletariat separated from its means of production prevented a large-scale development of capitalist production in either China or India.

Regardless of the nature of its pre-capitalist modes of production, the peasant populations in all pre-capitalist countries are used to very low standards of living and hard manual labor from childhood on. Once capitalism starts to develop in such countries, their peasant populations are from the point of view of the industrial capitalists ideal recruiting grounds for industrial proletarians. As a general rule, the greater both absolutely and relatively the size of the peasantry the higher will be the rate of surplus value once capitalism takes root.

A high rate of surplus value, as we have seen, enables the capitalists to hold back the growth of the organic composition of capital — particularly relative to what science and technology of a given epoch makes possible. This is in the interest of capital as a whole because the lower organic composition of capital, all other things remaining equal, the higher the rate of profit. This is very important for John Smith’s book.

A new stage of development of imperialism

In the late 19th and early 20th centuries, we saw the most rapid capitalist development in the United States, where the moral element added to the value of labor power was relatively high because of that country’s origin as a white colony. Today, however, we see the most rapid capitalist development in China, India, Bangladesh and Vietnam, which had been global centers of production in pre-capitalist times. It is therefore their heritage of irrigation agriculture with large peasant populations that has enabled these countries since the “Volcker shock” of 1979-82 (initiating the trend of U.S. “de-industrialization”) to once again resume their roles as centers of global commodity production that they enjoyed during the European Middle Ages and even Roman times.

But with an important difference. Unlike the Middle Ages, production in modern Asia is being carried out on a capitalist basis by a rapidly growing class of industrial proletarians. However, for now, despite and in a sense because of the rapid development of the productive forces in the Asian countries, these proletarians are exploited more than ever by capital owned and still largely concentrated in the hands of U.S. and European capitalists.

These new relationships — which we will see in coming months was foreseen as a tendency in Lenin’s “Imperialism” — have been rapidly taking shape since the “Volcker shock.” This new stage of imperialism, which is the subject of Smith’s book, has enabled global capital to maintain a much higher rate of profit than would have been the case if the Asian countries had not existed. The imperialist countries have been able to extract vast quantities of surplus value from the rapidly expanding industrial proletariat of the Asian countries, the lion’s share of which is being pocketed by the capitalists of the United States, Western Europe and Japan and their hangers on. John Smith stresses this point, which in my opinion cannot be overemphasized.

Here we see the vampire-like nature of capitalism, where the existence of countries where the value of labor power is very low — though it is now beginning to rise due to the rapid growth in the demand for labor power — enables dead labor in the form of imperialist capital to exploit living labor in order to extend its “unnatural life.” The existence of vast pools of cheap exploitable labor power is what is keeping capitalism alive into the 21th century.

However, imperialism cannot do this without handing the working classes of these Asian countries the means of not only shaking off the exploitation of the imperialist countries but also the means of settling accounts with their own capitalists as well. This is the most important point of all.

Baran and Sweezy versus Marx on the value of labor power and the production of surplus value

Baran and Sweezy rejected Marx’s view that a moral element is added to the biologically defined value of labor power and put forward another theory in its place. We know this, despite the fact that Baran and Sweezy avoided value theory in “Monopoly Capital,” because Monthly Review published correspondence between Baran and Sweezy when they were working on that book.

The two authors were attempting to reconcile the ideas that were to go into ”Monopoly Capital” with Marx’s theory of value and surplus value. Baran and Sweezy, in contrast to Marx, defined the value of labor power in terms of what is strictly biological necessity. Any additional value produced by the working class they defined as “surplus value.” Marx, in contrast, defined surplus value as the value that is appropriated by a class of non-workers.

While the difference between Baran and Sweezy and Marx may seem terminological, it actually has important social and political implications. Marx’s theory of value, wages and surplus value highlights the exploitative relationship between the capitalist class and working class. Baran and Sweezy, in contrast, neglected the relationship between these classes in their magnums opus. Any rise in wages above the strict biological necessity needed for the working class to live and produce the next generations, they saw as the working class itself appropriating increasing quantities of surplus value.

Baran and Sweezy in their correspondence believed that in the early stages of capitalism virtually all the surplus value went to the capitalists — or the landlords — and their hangers on, but as capitalism developed, more and more of the surplus value accrued to the working class. Whether this has anything to do with the rejection of any special revolutionary role of the working class contained in “Monopoly Capital” is an interesting question for the historians of later 20th-century economic thought to explore.

Absolute surplus value

Suppose the workday is eight hours and the rate of surplus value is 100 percent. The workers work half of each eight-hour working day for themselves and half for the boss. Then, assuming all else is equal, the bosses succeed in extending the workday to 10 hours. We assume that the workers are paid exactly the same as before. The workers are now working four hours for themselves and six hours for the bosses. The rate of surplus value is now 6/4 or 150 percent.

Now assume the bosses succeed in increasing the work day to 12 hours. The rate of surplus value is now 12/4, or 300 percent, and then 16/4, or 400 percent. This indeed was the historical tendency of capitalism into the early 19th century when workdays were 16 hours and even 18 hours. Marx called this process the growth of absolute surplus value.

But this process runs into limits. The laws of biology pretty much limit the average workday to 16 hours, because the human organism needs six to eight hours of sleep on average in each 24-hour day. In addition, by the early 19th century industrial capitalists were running into growing organized resistance of the industrial workers, who in Britain, the leading capitalist country of the time, were increasingly organized in trade unions.

Movements arose in Britain and other countries where industrial capitalism was taking root to limit the workday to, first, 14, then 12 hours a day, then to 10 hours, and near the end of the 19th century eight hours a day. This was and is important not only economically but politically, because if the workday is more than eight hours a day it is virtually impossible for workers to participate in politics. This is why the struggle for a workday of eight hours is considered a basic democratic right and why workdays of more than eight hours represent not only a form of super-exploitation but a violation of basic bourgeois democratic rights.

Relative surplus value

Assume as before the workday is eight hours with the workers working four hours for themselves and four hours for the bosses. Let’s assume that the bosses succeed in cheapening the value of the commodities that make up the workers’ real wage from four to two hours per day. The real wage is unchanged in terms of use values but now represents only two hours of labor while before it represented four hours.

The workday remains unchanged at eight hours. However, the workers now work only two hours for themselves and six hours for the bosses. The rate of surplus value rises to 6/2 or 300 percent. Suppose that the commodities that represent the real wage of the workers is further cheapened so that the average market basket of commodities workers require to reproduce their labor power and raise the next generation now represents one hour of (average) labor. Again, we assume everything else remains unchanged. The workers now work only one hour for themselves and seven hours for the bosses. The rate of surplus value rises to 7/1, or 700 percent. Marx called the increased surplus value obtained by this method relative surplus value.

The later stages of capitalism, from the early 19th century to the present, are characterized by the growth of relative surplus value. It reflects the great acceleration of the rate of growth in productivity that arises both from the advances of science and technology but equally importantly from the struggle between the capitalist class on one hand and the working class on the other.

The machinery that has made such a huge increase in labor productivity possible since the early 19th century is in the hands of the bosses a powerful tool for increasing relative surplus value. At the same time, it creates the basis of a society of abundance and free time that will form the basis of a socialist society and eventually a full-scale communist society, where people will receive according to need and work according to ability.

Next month, I will examine wage labor and value, which is crucial in John Smith’s “Imperialism.”


1 An example is the continuing attempts by the U.S. Republican Party to eliminate health care from the value of labor power, while the U.S. Democratic Party defends so-called “Obamacare,” which leaves millions uninsured, as the only acceptable alternative to the Republican proposals. Also, in parts of the U.S., wages of even educated workers are not sufficient to cover the cost of shelter. Many Workers are literally forced to live in their cars. But this is fine from the viewpoint of capital. For a capitalist, it is pointless to pay a wage covering the cost of shelter and transportation — an automobile — when an automobile can do double duty as a means of transportation and a means of shelter. (back)

2 During the gold standard, workers were rarely paid in gold coins, since the amount of bullion the wages represented were far too low to make into gold coins. Instead, workers were generally paid in token coins made of base metals. Unlike today, however, in the days of the gold standard the amount of gold a token coin represented was stable. (back)

3 Some Greeks saw the reestablishment of the Greek national currency as necessary in order to defend Greek national sovereignty against the European Union, Germany and the United States. However, many other Greeks suspected that the reestablishment of a steeply devalued drachma would amount to a wage cut. This blog takes no position on whether or not Greece should reestablish the drachma or remain in the eurozone. Under the principle of the right of nations to self-determination, this is a decision for the Greek people alone to make. Here I am merely using the debate over reestablishment of the Greek currency for purposes of illustration. (back)

4 According to Wikipedia, before the age of coined money: “The name drachma is derived from the verb δράσσομαι (drássomai, ‘(I) grasp’). [n 3] It is believed that the same word with the meaning of “handful” or “handle” is found in Linear B tablets of the Mycenean Pylos. [3][n 4] Initially, a drachma was a fistful (a ‘grasp’) of six oboloí or obeloí (metal sticks, literally ‘spits’) used as a form of currency as early as 1100 BC and being a form of ‘bullion.’…” The quantity of these silver sticks that a human hand could grasp therefore represented a definite weight of silver bullion. Here we see the origins of currency units as definite weights of silver or gold bullion. (back)

5 Apologists for capitalism like to explain that during the 1920s Henry Ford was among the first industrial capitalists to pay workers $5 a day. In reality, Ford had to pay the workers $5 to maintain the grueling pace of the assembly line, even before the workers were organized in unions. He wanted to pay less than that — the least possible — but simply could not retain workers if he paid less than $5 a day. This shows that in the 1920s the value of labor power employed on Ford’s assembly lines was $5 a day. How do these wages compare to the wages the auto bosses pay today for assembly line work? In terms of currency, wages have risen greatly but in terms of gold — golden wages — not so much.

In terms of today’s dollar, a wage $5 per day is shockingly low. And indeed it would be. Who could possibly live on $5 a day? And yet $5 was considered an extremely high wage in the 1920s. However, what was the golden wage for auto workers in the 1920s compared to the golden wages of U.S. auto workers today? At the time, the dollar price of gold bullion was, under the gold standard, maintained at $20.67 an ounce by the U.S. Treasury and Federal Reserve System. Today, the price of gold bullion is variable but recently — late 2017 — it has been around $1,250 an ounce.

In terms of golden wages, using today’s “golden dollar” as opposed to the 1920s “golden dollar,” this comes to about $300 a day. The wages that Henry Ford was forced to pay therefore compares quite favorably to the golden wages that U.S. auto companies are paying today. Wages for new hires now can be as low as $16 an hour, or about $128 per day assuming an eight-hour work day. Even assuming a wage of $30 an hour, that comes to $240 per day. It seems that golden wages were therefore not lower in the 1920s but higher.

This, however, isn’t the whole story. The workday was generally longer in the 1920s than today, though even today workers are forced during “boom” periods to work for 10 hours or longer, though they are paid “overtime” for workdays exceeding eight hours, and of course the golden prices of commodities are lower today. And today’s U.S. auto workers — at least those with UAW contracts — get retirement and other benefits that were not available to auto workers in the 1920s.

In addition, there are commodities on the market that today’s auto workers would have trouble living without that were not available to Henry Ford himself — then one of the world’s richest men — in the 1920s, let alone his workers. These include TVs, laptops and tablet computers, as well as smartphones. Life expectancy is also far longer than it was in the 1920s due to progress in medicine and, not least important, sanitation.

However, even taking this all into account, there seems little doubt that once the vast increase in the productivity of labor since the 1920s is considered, the relative position of U.S. autoworkers has deteriorated greatly compared to their
1920s forerunners. Today’s U.S, auto workers are almost certainly working for a considerably greater portion of the working day for the auto bosses, which include the descendants of Henry Ford, and a smaller part of the working day for themselves. (back)

6 By modern slavery I mean the slavery that developed from the 16th century onward, as opposed to the widespread slavery that prevailed in ancient Greece and Rome. (back)

7 Strictly speaking, unimproved land has no value, since it is a product of nature and not human labor. So the appreciating value of land really means growing super-profits that are appropriated by owners of land in the form of ground rent and then capitalized as the “value” of land when it is sold for a sum of money by the landowner to another person. This phenomena is extremely important to the study of modern imperialism and will be examined in detail in the course of this extended review of John Smith’s “Imperialism.” (back)

8 This mode of production is sometimes called the “Asiatic mode of production,” as it was called by Marx in some of his writings. The Asiatic mode of production is a controversial topic among Marxists, largely because it has been used to contrast stagnant despotic “unchanging” Asia with the “progressive” and dynamic West.

However, many Asians feel that the Asiatic mode of production concept dramatically underestimates the accomplishments of their pre-capitalist societies, and is therefore “Euro-centric” and not free of racist overtones. Because of this, I will avoid the term and simply refer to the central feature of production in these societies that differentiated it from the history of production in Europe — the widespread use of irrigation in agriculture.

In addition, the concept of the Asiatic mode of production was developed before the dramatic industrialization and rise of modern Asia, especially in the years following the 1979-82 “Volcker shock,” which puts the earlier history of production and society in Asia in a somewhat different light. (back)

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