Sunday, August 2, 2009

Comment and Questions on Wage-Labour and Capital 1

On Wage Labor and Capital

I feel that this reading (1891 Edited by Engels) is the one of the most well developed and succinct document about several Marxist issues. Marx mainly makes four points in this reading.
1-The prices of goods fluctuate around their cost of production.
2-Wages are determined by the cost of labor power (the theory of subsistence or minimum wage)
3-There are three wages
a) Nominal wage,
b) Real wage (subsistence wage)
c) Relative wage (for Marx, this is the most crucial)
4-Skilled labor is replaced by unskilled labor as a result of deepening of division of labor and the application of machinery which are direct results of competition among capitalists.

I would like to post some comments and questions for each point. Here, I will try to discuss the first point.
1-The prices of goods fluctuate around their cost of production.
According to Marx, It is a “general law”, because whenever the price of a commodity is higher its cost of production, (as a result of demand and supply conditions) there will be higher profit for the producers of the commodity which, in turn, attracts capital from other industries into high profit industry. The natural outcome of this process is that the price will fall back. If the price is lower than the cost of production, capital will move out from low profit industry which will cause an increase in the price.
It is obvious that this can be true only if we accept that intense competition is the dominant mode of competition under capitalism and related to this, there are not big entries and exist barriers to capital movements. In other words, the most important requirement for the existence of this “general law “ is the existence of intense competition. However, we know that many markets have monopolistic characteristics. One may consider that this can pose a problem for “the general law”.
Marx, as he put it very clearly in several places, is aware of the monopolistic tendencies in many markets. However, for him, “monopoly produces competition, competition produces monopoly. Monopolists compete among themselves; competitors become monopolists” [The Poverty of Philosophy]. So, for him, monopolistic markets are not immune to competitive pressure too. In this sense, if we consider this part of the Marxist price theory as a dynamic long term price theory, it is difficult to refute it.
In fact, I feel, it has some very apparent similarities with the neo-classical perfect market theory, though it seems to be much more developed, because, at least Marxist theory can understand monopoly and competitive markets in a very dynamic framework
This theory can be easily tested by some statistical methods (such as co-integration technique). In other words, one can test if there is a long-term relationship among prices and their cost of production for different countries or integrated regions. My guess is that although it can be easily verified for (most or all) developed countries it may not be easily verified for especially developing countries (though it is possible to verify it for many developing countries)

I would like to discuss two details about the price determination:
- Although in the many places Marx seems to talk about the price determination of an individual good (at least I got this impression), at the end of Chapter 3, Marx argues that “ of course this [general law] does not hold good for a single given product of an industry , but only for that branch of industry. This statement confused me a lot. if we accept that the general law is only applicable to industry branch, the prices of individual goods in a specific branch are undetermined in this theory. If this is the case, doesn’t it pose a problem to the theory?
-Is substantiating that there is a long-term relation among the prices and their cost of production enough to have a satisfactory price theory? In some cases, although there may be a long –run relationship between the prices of goods and their cost of production, especially, in many less competitive markets prices can diverge from the costs of production for a long time. Can’t this decrease the importance of the “general law”?

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