Letter: Wages and Prices (1976)

Letter to the Editors from the April 1976 issue of the Socialist Standard

Wages and Prices

In the Socialist Standard (January), you stated in your reply to Derek Clarke: “There is no wages fund” in which one Union dips at the expense of others. If say, the engineers gain a pay rise, that does not obstruct agricultural workers from gaining one; in each case it is obtained from their respective employers, and no one else”.

This is simply not true. If we take miners’ wages as an example it can be seen at once that though the extra “raise” is paid by the employer in the first place, it is recouped through higher charges to the consumer. Try telling the people paying higher prices for their coal, that the extra money the miners got was from their employers and no one else! Of course there isn’t a wages fund as such: but there is a deal of truth in the statement by the late Stafford Cripps: “that the National cake is a certain size, and those who carve themselves a bigger slice, do so at the expense of others.” It is also true of course that extra wages can come out of profits if the profits are big enough, and there is pressure on the employer against raising prices.

The fact that the capitalist system restricts production is accepted in the context of this argument, but the fact that the cake can expand with an expansion of the economy, doesn’t invalidate the point. At any time, the size of this “National cake” is limited. Wages can increase in one or more industries at the expense of other wages! Do you believe that the relatively better placing of miners’ earnings today has come from the pockets of the rich? Is it not also true that a drop in purchasing power caused through higher prices is equivalent to a reduction in wages? You constantly reiterate that the only people who produce wealth are the workers. This is of course an absolute truth. But it follows that the workers’ wages plus the surplus-value the employers take is, in total, the price that the community as a whole has to pay for those goods or services. This is putting the whole interplay of wage rises and prices and the relative changes in the positions of groups of workers in the wages scale too simply, but I think it is sufficient for the point.

May I congratulate you on your open and frank approach in printing the debate “Socialism or Reformism.” I found myself more in agreement with the viewpoint put by LPYS than with that of the SPGB.  I feel that the leaders of the SPGB live in an ivory tower. It is a sad reflection on the policies followed by the SPGB that as L. E. Weidberg remarked in his article “Why I joined the SPGB”:

“And sadly one must confess that the real Socialists in the great working class city of Manchester could still meet in the Atkin’s parlour.” All together in one little room — after nearly forty years or so? 

S. Costin

 Essex 

Reply:

We are pleased to see you agree that the working class is the wealth-producing class in society. Wealth today is represented by vast numbers of commodities and on average these are bought and sold at their values. When a capitalist employs workers, he pays a wage which is again, on average, the value of their particular commodity, i.e. Labour-Power. Their labour is something different, this is what they leave behind them at their places of work in the form of commodities belonging to their employers. The capitalist is able to sell his commodities at a profit by selling them at their value because of the unpaid labour contained in them.

In a given industry — whether privately or State owned — the owners must immediately meet any increase in wages at the expense of profits. But it is wrong to assume that a capitalist can automatically and immediately recover this reduction in profit by increasing his prices. In the first instance he is in competition with other capitalist concerns, and an arbitrary increase would give his competitors the edge in undercutting him. In fact, in normal market conditions, the seller of a commodity will always ask as much as he thinks the market will stand. Even in monopoly conditions, where prices can be kept artificially high, there comes a point when buyers seek alternatives, or will cut down. Look for example at the increase in oil prices after the 1973/4 shortage, followed by a reduction in consumption, and currently, a petrol price war. If, as you assume, an increase in wages can be covered simply by increasing prices, consider why the capitalist did not put up his prices before granting a wage increase. The fact is that capitalists keep a close watch on their markets and try to keep their prices in line with market conditions. Although you direct your comments to price-rises as they affect the “consumer”, it should be borne in mind that the capitalist class themselves are huge consumers of commodities, and the example you give of coal serves to underline this.

Similarly, when workers sell their commodity labour-power, they will seek the highest possible price and in general this will be equal to the value of the labour-power, corresponding to the amount required to feed, clothe, shelter and generally maintain the worker and his family in accordance with traditional standards. Whether individual groups of workers can enforce a rise in wages in order to maintain or improve these standards will depend on the circumstances at the time, but it must be noted that they cannot be depressed very far. In general the most favourable condition for achieving wage increases is when production is expanding and the capitalist is therefore unwilling to risk stoppages. The owners will view wage demands in the light of their increased profits.

Inflation (the excess issue of paper currency) complicates the whole picture by generally pushing up all prices (remember here that wages are prices). Since 1938 prices have risen approximately eight times, while the “national cake” has only doubled. As Socialists we are not impressed by the size of the “national cake” nor the crumbs that the workers are likely to get from it. Rather it is the bakery which we are interested in. We refer you to Value, Price and Profit by Karl Marx where you will find your proposition, and Marx’s reply to it, in much greater detail than we can go into here. Instead of cakes, he deals with a bowl of soup and spoons of various sizes.

We are sorry that you find the LPYS point of view more agreeable than our analysis of society. To us, it is a nonsense to tell people to vote for the Labour Party and then spend most of the time criticizing it. The SPGB has no leaders and the fact that the Party is small does not detract from the accuracy of our case. We maintain that it is better small and Socialist, than large and steeped in reformist nonsense.

Editors