How society works (2024)

From the August 2024 issue of the Socialist Standard

Do wage increases lead automatically to price increases? If they do, there would presumably be no point in fighting for a wage rise, as it would just mean that prices of goods would go up too, and people would be no better off. Looking further into this issue reveals a great deal about how society works.

In fact, higher wages need not mean higher prices, because prices aren’t determined by wages. In many industries, wages are relatively high but prices low, and in others wages are low but prices high.

To see what’s behind this, we should step back a bit and look at what constitutes a wage and how prices are determined. Prices are of course influenced by supply and demand, but there has to be more to it than that, since what happens when supply and demand cancel each other out? What really matters is the value or exchange value of some good, and that depends on the amount of labour that was needed to produce it. Not just the last stage of production, but all the labour that went into obtaining the raw materials, the buildings, the machinery and so on. Why do TVs cost a lot more than electric kettles? Because far more labour goes into producing the TVs. The price of something is essentially based on its exchange value, but supply and demand can affect it as well.

As for wages, these are in fact also a price: the price of the worker’s labour power, or ability to work. Labour power has its own value, that of the value of what is needed to produce, maintain and train the worker: the cost of rent, food, heating, transport, clothing, entertainment etc. So a worker produces enough value to get paid sufficient to live on and bring up a family. But – and here is the big revelation – the worker will be forced to work for longer than that. In four hours’ work, you may produce enough to keep you going, and that is what you’ll get in wages. However, your employer has bought your labour power and can make you work for longer than that, say for seven hours. In those three extra hours, the value of what you produce goes to the employer: this is known as surplus value, and is what constitutes profit for the boss.

In that example, you work four hours for yourself and three hours for your employer. That is exploitation, and it lies at the heart of the current economic system. By all means struggle for higher wages, and against wage cuts and longer hours and harder work. But you should also be aware that, however hard you fight within the present system, you will always be in a subordinate and precarious position. The real solution is to combine with fellow workers and fight for the abolition of the wages system!

Paul Bennett