2007 - 2020

Viral Truth of Labour Power Revealed as Economy Stops

VIRAL LESSON: WE DEPENDS ON LABOUR POWER

WHEN the Covid-19 crisis is long over it will remain forever etched in the memory – a break in the political stratigraphy as significant as the K-T boundary that marks the end of the dinosaurs. The FTSE100 is down 35% since January, an implosion that represents a massive destruction of capital and potentially ushers in a decade of stagnation.

But there is one instant change that has utterly transformed political discourse. It is barely a matter of weeks since the economically illiterate Priti Patel banned the granting of immigration visas to so-called “unskilled”, people who in her racist imagination had little to contribute to the common good. In today’s transformed universe, as the entire economy shudders to a halt due to Covid-19, it suddenly appears that carers, delivery workers, folk who stack shelves in supermarkets – everyone in fact who keeps the most basic parts of the economy functioning – are desperately needed.

Surprise, surprise. Everyone from the Tory right to the social democratic centre is suddenly discovering that the economy only works because millions of wage workers put their alarm on and get out of bed every morning to go to work. Capitalism depends on workers – period. If you send the workers home to self-isolate, then the economy just stops.

It is time we relearned the central importance of labour power. To get there, let’s start with a little philosophical inquiry: what exactly creates wealth?

WEALTH’S SECRET INGREDIENT

In the ancient world dominated by subsistence agriculture, wealth was defined pretty much by what you could steal or dig out of the ground in the form of gold and silver. In the late medieval and early modern world, as land and seaborne communications extended globally, early economists revised this crude notion. They decided that wealth grew out of trade. Goods from X could be sold in Y at a mark-up. The merchant prince was the hero.

But the rise of manufacturing – stimulated by the demands of global trade – shifted economic opinion dramatically. Suddenly the penny dropped, so to speak. Wealth was created by expending human labour power. Wealth creation was limited only by the productivity of human labour – which science and technology made virtually unlimited. Thus, capitalism was born.

(For reference, Dr Marx always pointed out that human labour power does not create value alone – it needs raw materials to shape. So, Nature with a capital N is a co-determinant of wealth creation. Ergo, ruining Nature will automatically cut off that wealth creation. Sadly, many of Dr Marx’ latter day adherents forgot this bit and adopted a productivist heresy that turned Soviet Russia into an environmental ruin.)

The scientific breakthrough that labour power is the generator of wealth had dangerous consequences. It implied that the workers who provided this labour power were obviously the ones who should benefit directly from what they produced. And if there was a surplus available from this labour power to be used in future investment in new machinery, then the labouring class were entitled to a say in how any such surplus was used.

These were revolutionary sentiments that sent the “owners” of factories and machines, and their tame ideologue economists, into paroxysms of outrage. Especially when the 19th century working class Chartists in Britain decided they should have the vote. The labour theory of value is still making waves today.

MARGINAL ERROR

Cue a major ideological rethink by the (mainly middle class, English) economists. At first, these were happy to accept that “labour” (minus the “power” bit) helped create wealth. But surely individual workers made different contributions, and so were entitled to bigger remuneration? In the late 19th century, these economists came up with a brilliant ideological wheeze called “marginal productivity”. Generations of economics undergraduates have been bamboozled by this notion ever since.

The theory works like this. It’s true that workers add value to production. But the more workers you add, the less each individual contributes to overall output. Call this their marginal (extra) product. The wage a worker is entitled to is equal to the value of this marginal product – because no rational company pays more in wages than they get back in production.

This is the justification for low wages. As one more shop assistant, waiter, delivery person or Amazon employee adds only a tiny personal fraction to an organisation’s output and revenues, so they earn a tiny amount in turn. Not to mention each health ancillary, cleaner, carer, primary teacher, gardener, and so on. And if you are female, you obviously add even less.

In other words, wages under capitalism are deemed “fair” because they reflect the “real” input of the worker. Trades unions are therefore inherently irrational and economically dangerous because they demand wages higher than a company can afford, i.e. higher than the worker’s marginal contribution to output.

Marginal theory is a product of the lecture theatre not the factory floor. In actuality, wages are determined by industrial bargaining not to mention industrial struggle. The defeat of the trades union movement in the 1980s led to a vast fall in the share of wages in GDP, just as industrial productivity rose. As a result, real incomes then stagnated across in America and Britain. The salary and bonuses of a rich City trader or hedge fund manager has nothing to do with their marginal product and everything to do with financial speculation. Ultimately, the flatling of wages and incomes over the past two or three decades is the result of massive, inter-capitalist competition. Under capitalism, without strong unions, wages are always pushed down to the cheapest level required to keep the workers reproducing themselves. As Covid-19 causes mass unemployment (even if temporary) we will see the desperate plight of ordinary people the instant their job folds.

But we are not done. The bourgeois economists now had an even better wheeze. They argued that in addition to labour, wealth had two other components: capital (crudely, investment and machines) and land (including oil and raw materials). And that the owners of these two inputs to production also deserve to be paid their “marginal product”. Capital gets profits and land gets rent.

You have to be quick to spot the sleight of hand here. If a machine adds value then the machine should get a reward, not the hypothetical person who “owns” it. Of course, that’s daft. But so is justifying Richard Branson’s mega-profits by claiming he personally is adding value because a bank lent him money to buy an airliner.

Also: machines are made by workers. The production process uses two bits of labour power – the labour power of living workers using machines, plus the labour power incorporated in the machine by the workers who made it. Ergo, machines are just “congealed” labour power, which brings us back to labour power being the source of wealth and why it should get the reward.

One more thing on “capital”: how do you measure how much there is? Productive capacity consists of lots of machines and computers. How do you measure them to find out their marginal productivity? Do you just add up how many you have? You can try and measure their contribution to production by taking their cost price and discounting over their lifetime. But what rate of interest to use? And what if interest rates change? Measuring capital is an insuperable problem. But it does not exist as a technical issue, it is ideological camouflage to let Richard Branson and Jeff Bezos rip off their workers.

Next up comes land and rent. There is only a fixed amount of land, so bourgeois economists argue the “owners” deserve a cut of returns from making things as a “reward” for letting their “scarce” property be used in activity A rather than in Activity B. OK, land is scarce, and we might pay a scarcity rent for its use. But it is economically bonkers to pay this rent to some useless aristocrat of Russian oligarch. Rationally, the ground rent should be returned to some central, public agency to fund social infrastructure. As for the mining and supply of raw materials, that is done by human labour power, not by landowners.

BACK TO THE FUTURE?

So, we are back to labour power as the source of wealth. Enter Dr Marx, who tweaked this conclusion. Marx advanced a new form of the labour theory of value. He decoupled the individual worker from the individual good produced – after all some workers are more skilled or more productive than others. Instead, Marx argued that production is now a collective industrial and scientific endeavour. In other words, the collective workforce produces a collective global output. So, the collective producer should control the system, with remuneration determined socially, and any investment surplus and its use agreed politically.

In this world view, we don’t invent a hierarchy of workers since it is the collective that is crucial to the success of the whole system. Individual producers are not ideologically categorised as skilled and non-skilled. Individuals are paid through a combination of freely distributed goods and services (health, education, hopefully soon transport and housing), a universal basic income (largely for those not able to work), and a normal wage.

The catastrophe of Covid-19 has suddenly exposed the ideological façade that misrepresents and obfuscates how the collective workforce really supplies goods and services. And how the rewards of this collective endeavour are syphoned off by an owning class that is parasitical on the whole. Value comes only from collective labour power. Perhaps, as the market economy implodes, we might rediscover that truth.

Comments (5)

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  1. Dougie Harrison says:

    As the entire world appears obsessed by the virus, thank you George, for reminding us all of some essential truths. Whether many will recognise and act upon them remains to be seen. But sometimes alas, it takes an awful crisis before folks are shaken out of their belief in the imprisoning untruths of academic ‘economists’ and their political acolytes.

  2. Dave says:

    Mainly middle class ‘english economists’?
    Adam Smith….the greatest ‘capitalist’ theorist.
    Where did he come from.

    1. Anarcho says:

      From context, he was referring to the rise of neo-classical economists — Adam Smith came before Marx and marginalism came as a response to socialists (not just Marx) using the Labour Theory of Value to show capitalism was exploitative.

      It was not, however, mostly English economists — Walras was French and he wrote a book trying to refute Proudhon who developed a “Marxist” theory of exploitation 20 years before Marx did:

      http://anarchism.pageabode.com/anarcho/proudhon-constituted-value-myth-labour-notes

      http://anarchism.pageabode.com/anarcho/review-poverty-philosophy-karl-marx

      As the current crisis develops, it is pretty clear that labour makes the world go round — and that “key” workers are not those at the top of the social hierarchy!

  3. Wul says:

    Good article George.

    It was something that crossed my mind the other day, listening to Boris Johnston’s use of the term “key workers”.

    We are about to find out just who the most important contributors in our society are. I doubt it’s the “Masters of the Universe”, currently busy shorting their own country’s economy.

  4. SleepingDog says:

    Nature is far more than raw materials for production; it is a life support system, and an evolutionary arena. In an Eden-like state, notions of economy may entirely fade into the foliage. Do other animals have economies? Take ant colonies, for example, where ants have divisions of labour, perhaps even farms (grow fungus, shephered aphids), a military caste and so on.

    Even if something of a materialist, Marx made a point about idea commons, which may distinguish human economies. In the preamble to the Communist Manifesto, he and and Engels wrote about an achievement of globalized bourgeois society:
    “In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.”

    Ideas are a means of production (of more more ideas): and a form of wealth. This is a key reason why a human economy can be considered wealthier than even a global ant supercolony: ideatic wealth. Capitalists tend to try to enclose and claim ownership of ideas, hence their drive to establish a favourable global intellectual legal framework. And an opposing worldview which would put, for example, a vaccine for COVID-19 into the public domain, a global scientific idea commons.

    And a shelf-stacker is not an ant; and may have a world of ideas in their head. A different world from the next shelf-stacker. This is why general strikes are difficult to organize, even if a pandemic demonstrates the power of socially-essential workers. But worker power can also be abusive, as when for example workers defend dangerous militarism or polluting practices or abusive hierarchies or short-termism. A global ant-supercolony could, in theory, destroy much of the biosphere before self-destructing, and I presume would have no clear idea of such a possibility; but because global human civilization has access to ideas about complex systems, there is a chance that such destruction could be averted, if rational measures were taken. The current crisis is a test to see if rational measures prevail.

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