Monday, April 9, 2012

Lesson 27: Communist Economics 7: The General Law of Wages and Profits

Sign up for Newsletter. Send email to

Communist Economics

Part 7

Marx’s Wage-Labour and Capital:

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


We have said: ‘Wages are not a share of the worker in the commodities produced by him. Wages are that part of already existing commodities with which the capitalist buys a certain amount of productive labor-power.’”

Marx is conflating “wages” and “salary.” Wages do have capacity to be paid as a share of commodities produced (or services rendered). Examples of wages paid as a share include (1) commission, that is, a percentage from gross business (capitalist) income, (2) profit-sharing, that is, a percentage from net business (capitalist) income, and (3) stock options, that is, shares in corporate entity which have explosive upside potential. Salary, on the other hand, is a subset of wages, a figure set in advance to purchase labor-power.

This distinction between wages and salary is critical. For once the definition of “wages” is expanded beyond salary, the cry against capitalist “exploitation” becomes thinner and less plausible. The Marxian diatribe thus becomes a mere dialectic, an argumentation made for no reason other than to agitate, in this case to psychologically move a particular segment of the audience towards an untrue paradigm. In other words, Marxian economics is brainwashing.

Marx misleads also by making it that “wages” are paid from a preexistent accumulation of wealth (“part of already existing commodities”), as in a retail transaction. This is, first, not accurate. Most wages are paid after a certain duration, whether that duration be a day, week, or month. Second, but more importantly, the Marxian claim is dialectic. Since commodities and money (that is, recognized tender) generally fluctuate in price, the value or “buying power” of wages likewise fluctuates. The brainwash here is the assumption that such fluctuations in buying power always impact negatively against the laborer. But are there not fluctuations which benefit the laborer?

Suppose for example that a laborer (1) contracts his labor to a capitalist for $500 per week, and (2) pays rent at $700 per month, but thereafter discovers a similar or better rental at $600 per month. The financial condition, even the lifestyle, of that laborer is now improved.

Suppose for a different example that, after a laborer secures a home mortgage for $700 per month, the value of the dollar plummets so that it takes many dollars to buy a loaf of bread. The capitalist, if he wishes to retain laborers and thus stay in business, must increase wages to compensate for that decreased buying power. The mortgage payment, however, being under contract, remains the same at $700 per month. In this scenario, the buying power of the dollar against that mortgage has strengthened markedly.

Suppose for a third example that a gold miner, paid in commodity, that is, gold, rather than in money (exchange paper), finds his wage (gold) to be valued (priced) this week at $1500 per ounce but the following week at $1800 per ounce. All other things (subsistence) being equal, the miner has benefited from fluctuation within capitalism.

It might be argued that such improvements through wage fluctuation are manifestations of a weaker capitalist (local or global) economy. This argument is, however, misleading, attempting to move from the intrinsic value of wages to the extrinsic forces against them. It is concentration upon the overall economy rather than upon the laborer, and this in order to denigrate individual success for the sake of instigating collectivist compassion. Yet, the Marxist finds here a worthy adversary in his own supposed friend, for the laborer who finds himself in a more secure position (even temporarily so) is unlikely to temper his contentment and joy for somber reflection upon the condition of the masses. That is, any laborer (indeed, anyone at all) who happens to be succeeding, and is without guilt for that individual success, undermines through such economic atomism every Marxist goal. We find therefore communist philosophy not to coincide, but to be in conflict, with human nature.

Nevertheless, if this human nature be left to its own devices, it may create the conditions wherein communism incubates. For if labor becomes actual slavery, or if the conditions of labor become dangerous, or unfair in the extreme (all these things being, of course, relative), the organization of labor under such grievances will be infiltrated and manipulated by Marxist elements, so that, even if the grievances be righteous, then duly rectified, communism will have gained ground and momentum. It thus behooves the capitalist to work within a framework of morality, and one which defends capitalism. The framework which accomplishes both worthy goals is Torah, the Law of God, which commands not only the protection of private property against coveting and stealing (whether by individuals, or bodies such as governments), but also codifies the morality of proper weights and measures, of proper coin money, of debt management, of the treatment of labor, and so forth. Ergo, Torah is the proper parameter of capitalist society. It is no wonder then that all Marxist factions seek the destruction of Jewish influence upon society, if not of the Jews themselves.

Without such codified morality, the meritocracy of capitalism, and the security provided thereby, is a promise broken. When so, communism rides in on white horse, purporting to bring about the elimination of comparative poverty (class struggle), and the adjuration of societal guilt (racial, economic, etc) through “full employment” and “fairness.” And though every red revolution has ended in mass starvation, mass genocide, and/or totalitarianism, that heady fragrance of communism still appeals to the envious (Victim) and to the uninitiated (sympathetic dupe), both of whom are easily enticed towards the representative of such utopia (Savior).

It might also be argued that Marx decries not the timing of wage payments, but rather the entire concept of wages. However, since for Marx the synthesis of his dialectic is always the demolition of capitalism, not its reform, any Marxist discussion regarding the timing of wage payments is irrational.

Further, it forces to the surface that Marxist economics is, generally speaking, sophistry, or, more accurately, the dialectic of contradiction, as if argumentation against reality automatically will create a reactive destruction leading to some new evolution of thought. For example, the communist argument, that capitalism jeopardizes every gain of the laborer, is itself specious, for it negates that capitalism is the creator of gain; and the communist threat, to seize the means of capitalist production, proves this, unveiling the argument as only dialectic, not reason.

“But the capitalist must replace these wages out of the price for which he sells the product made by the worker; he must so replace it that, as a rule, there remains to him a surplus above the cost of production expended by him, that is, he must get a profit.”

Profit is actually the mechanism by which the laborer continues. For without profit, his ingenuity reaping nothing, the capitalist quits. The Marxian counter-claim, that production ought and is able to continue in like manner without profit motive, is filled with error. First, self-interest is that which motivates, whether under capitalism or not. Without such self-interest, quality productivity continues only under threat. Second, the state which replaces the capitalist must be helmed by administrators who produce nothing. Thus, a portion of “profit” is inherent even under communism, and such has been amply proved by the gluttonous Politburos of red nations. Third, unless there is totalitarian slavery, the contract between laborer and capitalist is a voluntary one. Profit is therefore not an exploitation but a recognized component within the mechanics of capitalist “work.” Under communism, however, the laborer is not self-directed, and retains less autonomy than under capitalism.

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

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

Second, the replacement of the wages advanced; and

Third, the surplus leftover – i.e., the profit of the capitalist.”

Missing from this simplistic model are those “portions” (taxes, licenses, fees) taken coercively by government entities. Since taxes are as old as government itself, Marx must be judged to have intentionally omitted this point, likely to deflect away from the full taxation of central governance, that is, of communism.

The clause “from the point of view of the capitalist” is a dialectic meant to cause the reader to assume that an alternative economic model, namely production without profit, exists. However, such economic model must be under the auspices of a benevolent government. For the man who works not for wages but for distribution of wealth (communism) is neither in control of his destiny nor of his circumstances (but the man who works for wages has both), and therefore is at the mercy of central control. In fact, the man who works for distribution of wealth is little more than a slave working for his daily gruel. It should come as no surprise then that Marxist nations must use extreme coercion (military, peer pressure, etc) to accomplish “production without profit.”

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

Note that Marx agrees with the capitalist model only when he cannot avoid it. Wages and profit are indeed shares in the product. However, Marx sullies his own truth by saying that the product is “of the worker,” as if the capitalist has no involvement in the process other than to slice off profit. This in fact describes government, which, without any personal involvement (unless one counts the common defense), apportions to itself a share called, colloquially, taxes. In stark contrast, the capitalist, having invested his ideas, hopes, credit, savings, sweat, and nerves, deserves every bit of his profit. Consider also that even if the product or service fails, and the capitalist is put to the street, the wage to the laborer, and taxes to the government, must still be paid even if no profit is reaped!

Now, Marx unexpectedly mentions that both profit and wages are dependent on a “new value.” What is this new value? Factually, it is the whim of the marketplace, which commands the ceiling of any price. Profit, therefore, is not an exploitation of the honorably contracted laborer, but an exploitation of the desires of the marketplace. But if prices be reined in by other than the marketplace, what else is it but government coercion (price fixing, the communist norm) or else corruption (failing to regulate against monopoly, that is, crony capitalism)? However, since neither of those is desirable, it is the marketplace, and thus capitalism, even with its dangers and pitfalls, which is the superior economic framework.

“Real wages may remain the same, they may even rise, nevertheless the relative wages may fall. Let us suppose, for instance, that all means of subsistence have fallen 2/3rds in price, while the day's wages have fallen but 1/3rd – for example, from three to two shillings. Although the worker can now get a greater amount of commodities with these two shillings than he formerly did with three shillings, yet his wages have decreased in proportion to the gain of the capitalist.”

First, the example from Marx is itself a dialectic, deliberately ignoring alternatives of a universal nature, as our own examples above. Particularly conspicuous in its absence is any discussion concerning universally lower prices. If “all means of subsistence” have fallen 2/3 in price, and the price of gasoline is $1.33 rather than $4.00, does this not positively affect the capitalist as well as the laborer? Under such conditions, is not the laborer more secure in his position?

Second, concerning wages, Marx enters a dialectic within the dialectic. Consider that if “all means of subsistence” have fallen by 2/3 in price, but wages have fallen by 1/3, the buying power of wages has increased by 100%. Under such scenario, the laborer is able to purchase twice as much as before (denoting the strange dynamics of capitalism, the potential to at any time tip the scales favorably towards the laborer). What then does it matter that the capitalist is still “ahead of” the laborer? But Marx concentrates nearly all upon this difference, which is simply class envy, leading to class warfare.

“The profit of the capitalist – the manufacturer's for instance – has increased one shilling, which means that for a smaller amount of exchange values, which he pays to the worker, the latter must produce a greater amount of exchange values than before.”

First, if all means of subsistence have decreased by 2/3 in price, is this not deflation? If so, is not capitalist profit retained through price decreases in such things as raw materials, and electricity to run machinery? And if deflation, is not capitalist profit fairly the same and not increased due to lower prices commanded by marketplace forces, such as competition?

Second, the laborer in this example does not receive a smaller amount of exchange values, but rather has twice the buying power. Despite the lower cost in shillings (nominal wages), the capitalist has still paid out the equivalent of a 100% raise (real wages). Marx is contradicting himself.

Third, the laborer does not produce a greater amount of exchange values. If the capitalist must lower his price due to overall deflation, both the price of the product or service, and the profit, have moved in kind with the laborer. Ideology notwithstanding, this evens out the marketplace. If the capitalist, however, is able to hold prices high against deflation, even by monopoly or price fixing, this still is of no concern to the laborer, who has in any case doubled his buying power.

“The share of capitals in proportion to the share of labour has risen. The distribution of social wealth between capital and labour has become still more unequal. The capitalist commands a greater amount of labour with the same capital. The power of the capitalist class over the working class has grown, the social position of the worker has become worse, has been forced down still another degree below that of the capitalist.”

First, we must acknowledge the existence of class envy. The Tenth Commandment proves that God has decided its existence as long as mankind endures. Marx, eager to point out disparity between social wealth, and utilize it as a lever for upheaval, is thus not a savior from, but a carrier of, this corruption.

Second, we must also acknowledge that wealth equals power. In politics, money often buys the race, and therefore the elected official commonly puts effort towards repaying contributions with favors. Since politics sets the guidelines for our lives, from the taxes we pay to the ordinances we must obey, this is a real power, able to be mishandled and misused. But even in everyday life, there is an arrogance among certain rich which corrodes the relationship between social and economic classes. One might therefore be inclined to agree with Marx, that “the social position of the worker has become worse, has been forced down still another degree below that of the capitalist.” However, money and power are not the only determinants of social propriety. There is also liberty and morality.

In the United States, the Constitution has empowered even its least citizen with certain inalienable rights from God, eclipsing the so-called “rights” awarded by any other nation. When this Constitution is adjudicated with impartiality and fairness, as prescribed by Torah, that is, by Law, and not by men, even the lowliest American laborer enjoys a lifestyle and freedom well above any laborer elsewhere. It might be argued that American liberty is an illusion, administered under oligarchy and corruption. Perhaps, but that “illusion” includes free elections, which, in reality, are the will of the people, reflecting either their great morality or else their overwhelming apathy.

“What, then, is the general law that determines the rise and fall of wages and profit in their reciprocal relation? They stand in inverse proportion to each other. The share of (profit) increases in the same proportion in which the share of labour (wages) falls, and vice versa. Profit rises in the same degree in which wages fall; it falls in the same degree in which wages rise.”

This is pure dialectic posing as sage conclusion, rhetoric as mathematical formula. For there is no direct correlation between wages and profit, neither are they at “inverse proportion.” Instead, wages are products also, formed by competition within the labor marketplace.

Wages are also not the only factor to determine capitalist profit. For even if the savvy capitalist is able to procure labor at a windfall, there is still to consider the cost of materials, of hazards, of governmental interventions, and yet other things which affect the bottom line.

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

Marx notes three manners by which profit may be increased without undue burden on labor: (1) increased demand, (2) ruthless business practices, and (3) streamlined production through invention and other means. There is, however, a dialectic afoot, for Marx is not proposing capitalist reform but is setting up false frameworks by which to destroy capitalism.

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

The curtain is pulled back, revealing communism as naked envy. For, according to Marx, even if the capitalist is able by ingenuity to squeeze out more profit for himself without curtailing or diminishing the wages of labor, it counts as loss for the laborer!

“In the second place, it must be borne in mind that, despite the fluctuations in the prices of commodities, the average price of every commodity, the proportion in which it exchanges for other commodities, is determined by its cost of production.”

Naturally, cost of production is figured into the price of anything. However, this is oversimplification, typical of Marx when he wishes to bridge the gap between fantasy and reality. For the price of anything is not determined only by costs of production, but also by (1) the personal goals (self-valuation) of the capitalist, (2) transient product valuations (seasonal, fad, etc), (3) costs against sales (commissions, taxes, etc), (4) unforeseen losses (theft, for example), and more. While it may be argued that these are “costs of doing business” and therefore “costs of production,” the ramifications are more far-reaching than Marx permits.

“The acts of overreaching and taking advantage of one another within the capitalist ranks necessarily equalize themselves.”

Over what time period? To say that increased demand has a particular half-life is foolhardy, for who can say what will be the future of, say, Apple products? This deliberately pessimistic view of marketplace demand is a communist dialectic meant to dishearten the laborer and to elicit compassion from the sympathizer.

“The improvements of machinery, the new applications of the forces of nature in the service of production, make it possible to produce in a given period of time, with the same amount of labour and capital, a larger amount of products, but in no wise a larger amount of exchange values. If by the use of the spinning-machine I can furnish twice as much yarn in an hour as before its invention – for instance, 100 pounds instead of 50 pounds – in the long run I receive back, in exchange for this 100 pounds no more commodities than I did before for 50; because the cost of production has fallen by 1/2, or because I can furnish double the product at the same cost.”

Marx conceives that more supply equates to lower price, again ignoring the idea of continuous or growing demand. If Marx were applying such analysis towards one particular business entity, we might grant his prognostication to have merit, as one might heed a stock guru, but his broad sweeps against capitalism cannot prevail and are therefore foolish. Moreover, this example negates his previous example, which included the concept of increased buying power. These observations cause Marx to appear flippant and contradictory, which may or may not have been his aim (another dialectic).

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

First, Marx proposes the dialectic that capitalist profit is laborer loss. This appeals to disgruntled laborers and sympathizers (Victims), directing their baser emotions (anger, envy, hatred) towards the capitalist (Oppressor). However, profit (“net revenue of production”) is not “exclusively” wealth (“accumulated labor”) increased at the expense of wages (“proceeds of direct labor”), but is the capitalist reward for successfully traversing the maze of risks inherent to any business venture. Naturally, Marx does not direct the envy of the laborer towards risk, only reward.

Second, there is an intimation (actually, an agitation) that wealth is a finite revenue pie. However, the international credit markets have undercut this concept, producing an expansion of prosperity hitherto unknown. Even if we say that credit is phony wealth, the results have been actual. Real homes and real businesses have been built with nonexistent assets. The attenuation of credit risk notwithstanding, the laborer has probably benefited most from this phenomenon, notably through mortgages and personal loans for the entrepreneur.

That attenuation, however, has in recent years been exaggerated to such monstrous proportions that the entire system of capitalism appears to be unwieldy at best, exploitative at worst. Yet, this crisis is the result not of capitalism run amok but of deliberate communist plot. The communists, so masterful at organizing grievances, have been successful to lobby the angst of the poor against government officials eager to allay any uncompassionate public image (or who are socialists themselves). This lobbying aimed and delivered unending legislation against banks and other lenders, forcing them to abandon proper procedures and limitations in favor of easy credit for those least able to repay. In the name of fairness and compassion, the credit markets were deliberately overloaded with bad debt, causing subprime mortgage proliferation and student loan overextension. Thus, “good intentions” have at least temporarily ruined the name of capitalism.

This communist infiltration and determination is apparent wherever there is envy or anger. Anywhere a promise is not kept, or an implied right is not attained, the communist is there, foaming up anti-capitalism. Such promises should therefore be kept to a minimum, for capitalism guarantees nothing but the opportunity for free advancement. Further, the promises of politicians ought to be challenged at every chance, keeping down unworthy expectations, spendthrift Congresses, and salivating communists.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.