Under Capitalism, When Wages Rise…Wages Fall

In Wage-Labour and Capital, Marx posited: “The share of (profit) increases in the same proportion in which the share of labour (wages) falls, and vice versa. Profit rises in the same degree in which wages fall; it falls in the same degree in which wages rise.” 

He was talking about the relationship between wages and profits, both of which are garnered from the sale of a good or service. The business owner splits the money from the sale of a commodity in three basic ways. Part of it goes toward replacing the raw materials, and maintaining the machines, technology, and facilities needed to create the commodity at current production levels; part of it goes to the workers as wages; the last part of it goes to the capitalist as a profit. This profit is earnings over the cost of production; in other words, after the cost of creating commodities and paying workers is covered, it is extra money the owner can use as he wishes—to expand his business, to create more commodities, to build new factories or stores, to hire more workers, to raise wages, to give himself a fat paycheck, anything. No matter the price of a good or service, each one of these parts stands in proportion to the other two.

Capitalist competition drives the hunt for new means of production, in an attempt to create more products with less money. The division of labor and new technology will often mean fewer workers are necessary to produce the same output, but will always mean that a single worker can produce more product in a given amount of time than he could before. A business will therefore be able to sell its product for a lower price (undercutting the competition and seizing a larger share of the market) and increase profits at the same time (as a larger share of the market means more people are buying its product).

When this happens, Marx writes:

Profit, indeed, has not risen because wages have fallen, but wages have fallen because profit has risen. With the same amount of another man’s labour the capitalist has bought a larger amount of exchange values [reaped more profit] without having paid more for the labour…the work is paid for [with] less in proportion to the net gain which it yields to the capitalist.

With new technologies, the owner is getting higher productivity, more products, and more sales, while paying the worker the same wage. With a lower cost of production, a greater proportion of the sale price can go to the capitalist. With a larger share of the market and increased sales, the capitalist will take in larger profits for himself and his business and can decide whether or not he wants to increase wages to reward the very people who created his wealth. And sometimes he does, and “real” wages rise. But there remains a difference between real wages (what’s on your paycheck) and relative wages (the proportion of your paycheck to company profits). Marx writes:

Profits can grow rapidly only when the price of labour—the relative wages—decrease just as rapidly. Relative wages may fall, although real wages rise simultaneously with…the money value of labour, provided only that the real wage does not rise in the same proportion as the profit. If, for instance, in good business years wages rise 5 per cent. While profits rise 30 per cent., the proportional, the relative wage has not increased, but decreased.

To increase wages in the same proportion as increased profits is unthinkable for the owner—if he did that his proportion of profits would remain the same as if he hadn’t invested in new technologies. He would still be getting more money, naturally, but he wouldn’t be seizing a larger proportion.

This process is without end. Competition will drive someone else to divide labor further or use a new technology, someone will reap a larger share of a given market with a lower price, and profits will rise out of proportion to worker wages. The effect:

If, therefore, the [real] income of the worker increases with the rapid growth of capital, there is at the same time a widening of the social chasm that divides the worker from the capitalist, an increase in the power of capital over labour, a greater dependence of labour on capital.

The competition-driven frenzy to invest in new technology and get rid of workers, to increase productive output and profits, widens the power gap between the producers and the consumers. A worker who is fired, or whose wages are slashed, cannot fuel the economy as much as he had previously. But this is done at the same time productivity increases. So productive output grows as worker purchasing power shrinks. Socialist and famous adventure writer Jack London marveled at this, writing:

In the face of the facts that modern man lives more wretchedly than the cave-man, and that his producing power is a thousand times greater than that of the cave-man, no other conclusion is possible than that the capitalist class has mismanaged…criminally and selfishly mismanaged. (Zinn, A People’s History of the United States)

This system is obviously exploitive. Corporate owners enrich themselves and leave worker wages stagnant. A tiny few is growing unbelievably wealthy off the work of the many. As Mark Twain said, “Who are the oppressors? The few: the king, the capitalist and a handful of other overseers and superintendents. Who are the oppressed? The many: the nations of the earth; the valuable personages; the workers; they that make the bread that the soft-handed and idle eat.”

All wealth is created directly by workers, who make the good or provide the service. American Socialist Eugene Debs proclaimed, “I am opposing a social order in which it is possible for one man who does absolutely nothing that is useful to amass a fortune of hundreds of millions of dollars, while millions of men and women who work all the days of their lives secure barely enough for a wretched existence.” The money people do secure, of course, is quickly given back to capitalists as people pay for food, clothing, rent, and fuel.