Wednesday 2 February 2011

Land, Rent and Wages (IV)

Nathan's feedback (see previous blog entry in this series) and some interesting stuff I've seen, tell me it's time to put some flesh on the shirt-making example's bare bones.

But first, a recap:

  • (1) Mark-ups aren't needed to make a capitalist business profitable. In the example, increased output per worker per day (from 1 to 2 shirts), together with a constant pay rate (Re 65 per day), resulted in a surplus-value (i.e. profit).
  • (2) Two obvious ways to increase workers' physical output are (I) extending the working day or (II) making workers work faster.


  • (3) Output per worker per day is by definition a measure of labour productivity.

Implicit in (2) is the idea that in order for additional surplus value to arise, the gains brought about by labour productivity must offset any additional labour costs.

From the situation described by (1) and (2), one can conclude with Marx that capitalists' and workers' interests often are at loggerheads, or, in Marx's terms, they are antagonistic. By (3), this conflict frequently involves gains due to an increase in labour productivity.

Reconsider the idealized shirt-making example (see also here): the dual interests of workers and capitalists were initially harmonized by the fact that a single person, the proto-capitalist/artisan, played both roles: the worker's unpaid labour became the artisan's surplus-value, and initially the same person was both.

When the proto-capitalist started hiring workers, the conflicting interests remained, but the harmonization mechanism was lost: the workers' additional physical exertion wasn't compensated by additional consumption, or by wealth accumulation. In other words: we have found something similar to a new free lunch, except that workers pay for it. [*]

More generally: following (2), individual capitalists will try to increase working day length/intensity -so as to increase productivity and surplus-value-, workers will oppose this; workers will ask for higher wages, capitalists will resist them.

There are qualifications to the above, of course. Two of them:

  • There are absolute biological constraints at play, resulting in an inverse relationship between extension of the working day and its intensity: to force workers to labour 18 hours, risks lowering their productivity, for example. 
  • In a closed economy, wages cannot fall indefinitely, as individual capitalists would prefer: workers' aggregate consumption and individual productivity would fall. Profits would suffer: lesser sales and lesser productivity.

Enough for today. [**]

Next blog we'll add empirical evidence to this skeleton.


A little homework for the interested reader: you'll remember it took the hero of our little story (let's call him Hans) 20 years of shirt-making to grow considerably wealthy.

Imagine young Fritz (basically, a younger version of Hans: hardworking, smart, etc. and, on top, Hans' number one fan and emulator) starts working for Hans.

Assuming Fritz spends the next 20 years making shirts for Hans for Re 65 a day, how likely is it that he will grow as wealthy as Hans? What does it tell you about meritocracy?


[*] The reader is encouraged to compare the above with the content of Land, Rent and Wages (I), where the Ricardian theory of land rent was briefly exposed.

[**] The text here is loosely inspired by my interpretation of Kautsky's "The Economic Doctrines of Karl Marx", part III, chapters VI and VII. It can be found at the always excellent Marxists Internet Archive:

Chapter VI

Chapter VII

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