Don't capitalists have an incentive to make the working class richer, not poorer?

The People, April 20, 1991, page 6
QUESTION PERIOD

Don't capitalists have an incentive to make the working class richer, not poorer? The more money the working class has, the more it will be able to spend on new goods and services, thus fueling the continued growth of capitalism. Isn't this why the living standards of most workers have risen since the times of Marx and De Leon?

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Taking the second question first, it is only in very limited respects that living standards for workers have risen since the time of Marx and De Leon.

According to the law of value, workers under capitalism, on average, receive a "living wage" -- enough to sustain themselves and raise a new generation of wage laborers. Ultimately, the economic laws that govern the capitalist system as a whole will drive down that "living wage" toward the bare physical minimum needed for living and multiplying.

However, until the degeneration of the capitalist system reaches that point-that is, until the system exhausts every possible source of expansion or regeneration-industrial, technological and other material progress can cause workers' living standards to rise, though in an incremental and highly circumscribed fashion.

As Marx pointed out, the basic "living wage" that workers receive can vary according to historically determined social conditions peculiar to a given country at a given stage of development. In Marx's words, the value of labor power is partly determined by a variable "traditional standard of life" that includes "the satisfaction of certain wants springing from the social conditions in which people are placed and reared up."

In the United States today, for example, a car and a TV set are components of what would be considered a "living wage"; they enter into the determination of the value of labor power. Material development in this country has made a car a virtual necessity and a TV set a standard expectation (notwithstanding the fact that, under capitalism, both devices have been a mixed blessing). And yet a car and a TV set do not enter into the determination of the value of labor power in, say, Haiti today, and they obviously could not have affected the value of labor power in the United States of De Leon's time. In sum, within certain parameters, material development itself can modestly raise "living standards" for workers-without changing the fact that workers are still receiving a basic "living wage."

However, even as material development proceeds, the contradictions and defects inherent in the capitalist economic system combine to push the value of labor power in the opposite direction, with ever increasing force. The gulf between the value of workers' product and the value of their wages continues to widen, the displacement of labor from production continues, capitalist crises tend to grow more severe, the "oversup-ply" in the labor market grows, and the rate of profit tends to fall.

Ultimately, the downward pressure on workers' wages resulting from these factors will overcome the effects of material development and lower the standards of the "living wage" for workers.

The current decline in workers' average real wages-now approaching 20 years in duration according to Bureau of Labor Statistics figures -strongly suggests that we are now in this "ultimate" period of erosion in the social standards that determine the value of labor power.

As to the first question: Since profits are derived from surplus value, which can be extracted at an increased rate only by reducing the workers' share of their product, capitalists have every incentive to drive wages lower, not higher.

The fact that capitalists as a class also must rely on workers to consume a certain portion of the total product in order to keep the economy growing doesn't change the incentive of each individual capitalist firm to push its own wage costs down. Indeed, this contradiction is at the heart of the system's cyclical "crises of overproduction" which periodically rock the capitalist economy.

Some capitalists may well be aware of the contradiction, but they cannot resolve it. No individual capitalist firm is going to raise the wages of its own workers in order to contribute to raising the purchasing power of workers as a whole. The profit motive and the force of competition prevent such action. The firm that attempted to do so would have less surplus value than its competitors, would have less to invest in improved means of production, and sooner or later would be underpriced and ruined by the competitors that kept wages lower.

At least one capitalist think-tank, the Brookings Institution, recognized the essence of this contradiction about 40 years ago, in a book entitled, Income and Economic Progress. There it was argued that it was pointless to rely on a 'Voluntary increase of money wages as an adequate means of increasing the purchasing power of the masses," since "there is immediate gain for the individual business enterprise which can reduce wages below the existing market rate."

"To pay more than the market rate for wages," the book continued, "appears not only needless but also unstabilizing in its effects upon business generally. Moreover, the very essence of competition is to pay what has to be paid and not more. Why should one ignore market considerations when he hires labor any more than when he buys raw materials?"

The idea that the capitalist system as a whole would, hypothetical-ly, be more robust if wages were raised is not enough to cause capitalists to act contrary to their own immediate material interests. And this idea has nothing to do with the limited and qualified improvements in living standards that some workers have gained in this century-improvements that are now being reversed.