Wage Labour and Capital & Value, Price and Profit

Before specifically digging into how wages are set, Marx outlines how the price of all commodities is determined. He explains that one factor influencing the price of all commodities is supply and demand, and breaks this down into three types of competition: Competition between sellers (i.e., sellers try to sell their goods as cheaply as possible to gain a greater share of the market, typically lowering prices); competitions between buyers (i.e., buyers attempt to outbid one another, typically increasing prices); and competition between sellers and buyers. Sellers want to sell for as much as possible, and buyers want to buy as cheaply as possible, and the outcome of this disparity is determined by the relative strength of supply and demand—if supply is stronger than demand, price will decrease, and if demand is stronger, price will increase.

Within this paradigm, sellers either sell their goods above the cost of production and make money, or they sell below and lose money. However, the increase in price of one commodity affects others in relation to it. For example, if cotton is suddenly worth more money, then wheat is comparatively worth less, given both can be exchanged for money and all other commodities. This causes changes in the market, as capitalists will leave less-profitable industries and flock to the profitable ones. This leads to increased production in the profitable industry, which increases competition amongst sellers and brings the price back down again.

Ultimately, this means that rises and falls due to supply and demand balance out over time, leaving the cost of production as the only consistent factor that determines the average price of a given commodity. Marx emphasizes that this analysis is based on entire branches of industry, not individual manufacturers. He ends this chapter by claiming that the cost of production is determined by two factors: the cost of materials (i.e., the raw materials used in production, and wear and tear on machinery and other instruments of production) and the cost of labor-power. 

Wages—or the price of labor-power—are regulated by the same laws as every other commodity. Thus, wages are subject to competition and supply and demand, and are influenced by fluctuations in the price of other commodities. Also like other commodities, the bottom line is determined by the cost of production: In the case of labor-power, this is the cost to maintain the laborer and the cost for their training and education. Less training means less cost of production and lower wages, but maintaining workers also means supporting propagation to ensure there is another generation of workers ready to replace the current one when they are no longer physically capable of doing the work, similar to the way wear and tear on machines is calculated in the cost of production.

Thus, minimum wage is calculated based on the average minimum costs to ensure the survival, education, and reproduction of workers. As with supply and demand, this applies to the entire system of productive industry, and not individual cases, meaning many individual workers do not receive this requisite minimum amount, but overall, things balance out.

Marx outlines his definition of capital, which relies on the specific relations of production that mark bourgeois (or capitalist) society as distinct from previous forms of society (such as feudalism). According to Marx, most economists define capital as the raw materials, instruments of labor, and the means of subsistence—each of which is created by labor—that are used for the purpose of new production. However, this misses an important piece of the picture: historical context. If the commodities that make up capital, such as a cotton-spinning machine, are torn away from the specific capitalist relations of production, it is no longer capital, because capital has no meaning outside of its specific historical circumstances.

This is because capital is also exchange-values and the value of capital remains the same regardless of what commodity form it takes, since all can be exchanged for one another at various ratios. However, just because all capital is commodities, and all commodities can be exchanged, does not make all commodities capital. To become capital, it has to be put to use in the preservation and multiplication of itself—in other words, it needs to be exchanged for labor-power in order to produce more capital. This requires the existence of a class of people that has nothing but the ability to work, a class whose living labor can be put to use in serving the accumulated labor of capital to ensure it preserves and increases its exchange-value. A cotton-spinning machine under feudalism does not satisfy these social requirements, because the social structure and relations of society are entirely different. Thus, it is simply just a cotton-spinning machine and not capital. 

Marx discusses the way the exchange of wages for labor-power benefits the capitalist because they get a return on their investment, whereas the worker immediately consumes their wages to purchase the necessary means of subsistence. He illustrates the disparity using an example of a laborer who works all day for wages of one shilling, but returns two shillings’ worth of value in that time. For the worker, that shilling is consumed immediately and unproductively to sustain themselves, but for the capitalist, it is reproductive because they not only earn back their one shilling but gain another on top of it. Thus, the only way capital can preserve and multiply itself is through exchange for labor-power. This also means that in exchanging their labor-power for wages (which they need to do to survive), the working class strengthens capital and preserves its own enslavement.

In this way, the capitalist and the laborer presuppose one another: Neither could exist without the other, since the laborer would die without the wages that keep them alive, and capital could not exist without exploiting labor-power for its preservation. However, the nature of this relationship means that capital constantly enriches itself, while the working class is stuck fighting for existence. The result is that inequality between the two classes is destined to continue growing indefinitely.

Marx also contests the platitude of many economists that growth in capital flows back to the working class in the form of more jobs, which strengthens the position of workers and increases wages. He argues that the gains made by the working-class in these instances pale in comparison to the capitalist, so while they may earn more money than they did before, they are still poorer overall, because the capitalists’ wealth has increased exponentially more. He concludes by also pointing out that the money price of wages does not accurately reflect their value, as this is determined by how much can be gotten in exchange for them (he calls this “real wages”). Thus, the only way to accurately determine the value of wages is through their proportionate relation to the profit of the capitalist, which Marx calls “relative wages.”

Marx posits that the rise and fall of profits and wages are inversely related: If the capitalists’ share of the profits rise, then wages decrease, but if wages rise, then capitalist profit shares decrease. This is because, from the capitalist’s perspective, the selling price of a given commodity is determined by three factors: first, replacing the cost of the raw materials and the wear and tear on any machines or instruments of labor required in the production process; second, replacing the wages advanced to workers; and third, the surplus value, or profit that they will make from the commodity. While the first part simply replaces previously existing values, the wages and profit come from the value added to the raw materials by the worker. As a result, wages and profit can be seen as shares in the product of the worker, which means that when considering the distribution of wealth between capitalists and laborers, they necessarily stand in inverse proportion to one another. He also reiterates that even if real wages increase, this is meaningless if the relative wages fall, because it still represents a further shift in social power toward the capitalist class as wealth becomes more unequal.

Marx grants that capitalists may also increase profit by playing the market (making deals that are advantageous to them), but even this reflects a fall in wages, since the proportion of the profit that goes to wages does not change with the increase, so while profit has not risen because of a fall in wages, wages have fallen due to a rise in profit. He also points out that fluctuations in price brought about by playing the market end up equalizing when looking at the average of the entire market. This is because some people necessarily lose when others win, and even things like technological advancements that improve the efficiency of production lose their advantage over time, as they lead to a lower cost of production, which in turn lowers the price of the commodity.

Marx summarizes his argument thus far: The interests of wage labor and capital are diametrically opposed because an increase in profit means a decrease in relative wages. This happens because even if real wages (the price paid in money) rise with capital, they don’t rise at the same proportion as profit. Ultimately, this means that even under the most favorable conditions, the wealth gap between the classes widens, which increases the power capitalists have over the working class. Thus, even if a growth in capital leads to some material improvements for the working class, because wages and profits exist in an inverse proportion, it does nothing to resolve the antagonism between workers and capitalists. In other words, workers’ material position has improved, but their social position has worsened.

Marx ends the chapter by suggesting that unlike feudal lords, who were ostentatious in their displays of wealth and power, the bourgeoisie is more circumspect and secretive about its bookkeeping, because their existence relies on the working class’s compliance.

Marx explores the impact that growth of capital has on wages and competition among capitalists. He explains that as productive capital grows, the number of capitalists increases, as does the scale of their operations. The result is an increase in competition among capitalists as they fight for a larger share of the market by reducing their prices. To do this, they must produce goods more cheaply, and the most effective way to achieve this is through the improvement of machinery and the division of labor. This allows them to employ more workers more efficiently, which increases overall productivity; however, it also increases the scale of the working class’s exploitation.

By producing more goods more cheaply than before, the capitalist then needs a bigger market to sell to, which they can acquire by cheapening the price of what they sell. At first, they don’t have to adjust the price to match the lower cost of production, only enough that it is cheaper than their competitors. However, over time, those competitors will employ the same machines and processes of production to remain competitive, and the cost of goods will be lowered again. Thus, the capitalists find themselves in a position where they constantly need to lower the cost of production to remain competitive, which necessitates further division of labor and constantly improved instruments of labor.

Marx opens this chapter by repeating his assertion that capital must constantly seek cheaper methods of production through division of labor and the improvement of technology because capitalists are in competition with one another, and the survival of their business or industry relies on it. However, this also means that any advancements that provide an advantage are soon adopted by everyone else, which leads to a cycle where prices are perpetually dropping.

With this framework in mind, he explains the impact this cycle has on wages. The division of labor means that one laborer can suddenly do the work of several, which increases competition among laborers and causes them to sell their labor-power for less. The labor also becomes simplified and less skilled, making it monotonous, repetitive, and less physically and mentally satisfying. Less need for training or experience from laborers also widens population to draw from, again increasing the competition for work amongst laborers. Thus, labor not only becomes less satisfactory, but because anyone can do it, the cost of production and wages decrease as well. To combat these forces, workers have to produce more—either by working longer hours, or working harder during the time they’re on the clock. To make matters worse, by doing this, the laborer participates in their own subjugation by contributing to the division of labor and increasing competition with fellow workers.

The introduction of new technology has a similar effect, but on an even greater scale, as it replaces workers and ensures further division of labor. The irony here is that workers can never be completely replaced, because it is their exploited wage-labor that adds value to capital, so without it, capital would cease to be capital. Here, Marx also contests the common refrain that laborers replaced by machines simply move into the newly created industry of making machines, as machines are even being used here as well. Another consequence of this cycle is that small businesses and manufacturers cannot compete in this way and will inevitably be swallowed up by the sheer scale and magnitude of the industry giants.

Marx closes the essay by emphasizing the contradiction at the heart of this cycle as it grows and develops. At a certain point, the constant need for growth and expansion becomes unsustainable because as successful businesses have grown, they have effectively shrunk the market through their increased share. This leads to crises of overproduction, where there is not enough market for the immense amount of goods being produced. Marx argues that these crises will only become more frequent and violent over time, and that it is the working class that will suffer most when they do.