Karl Marx, "Wage-Labour and Capital." Introduction by Frederick Engels, International Publishers, New York, 1933. Available free.

Reading these simple notes is faster than reading Marx's original pamphlet. Just answering the questions is faster still. But neither truly substitutes for reading the original document and discussing it with other dedicated explorers. On the other hand, following an easier course of study does not preclude following another one later.

In the introduction, Engels says that Marx wrote this pamphlet on economics long before he wrote Capital; consequently, Engels updated it after Marx died so that it is "approximately as Marx would have written it in 1891." Someone just beginning to study Marxist economics may want to study value, commodities, and the labor theory of value before tackling this one. Engels begins with the idea of the commodity "labor power" as opposed to "labor." Labor power is a workers' potential to work, and it is the commodity that the capitalist actually contracts for, before any actual work is begun. This distinction between labor and labor power was a complete stumbling block for economists before Marx, and explains why they could never make sense of capitalism.

Bear in mind that we are studying macro-economics in the most general sense. One can always find exceptions, but the general rules remain.

Under the economic conditions of slavery, workers were a commodity to be used, bought and sold. Under serfdom, the serfs spent a portion of their time working for themselves and another portion for the landowner. Under capitalism, the capitalist owns and commands a workers' labor power. The laborer has no other option than to sell; consequently, he/she never actually owns that labor power. They might get to select their employer, but not whether or not they have to sell.

How is the price of a commodity determined?

The prices of commodities are not magically created in markets, as capitalist teachers would like us to believe. The market allows prices to vary somewhat, but it is the cost of production that determines a commodity's basic price. It is only in an ivory-tower dream world that the market might create conditions under which a new automobile would cost the same as a safety pin. The market variations in price tend to average out, and what they average out to is the cost of production.

In this pamphlet, Marx does not argue for the labor theory of value because it was well established in his day. Decades of anti-communism have hidden it from us, but it remains the only reasonable explanation of the basic value of commodities. The value of a commodity depends on how much labor has gone into it, including the labor that went into any machines that might have been used in manufacture, transportation, and distribution of the commodity. Labor is the source of all value.

How is the price of labor power determined?

As explained above, labor power is a commodity whose value is set by the amount of labor expended in creating it. In other words, the birth, rearing, and training of a worker basically sets the value of his/her labor power. The price of labor power may vary in different markets, and can certainly be changed by successful class struggle, but in general it varies around the cost of its production, just like any other commodity under capitalism. As Marx summarizes on page 27, "Thus, the cost of production of simple labor-power amounts to the cost of the existence and propagation of the worker. The price of this cost of existence and propagation constitutes wages."

Engels summarizes on page 10: "The value of the commodity labor power is the cost of producing the laborer, including his or her birth, rearing, and training."

What is Capital?

Capital is an accumulation of commodities which, brought together under the right conditions, can produce new commodities. The "right conditions" might include the abilities of the workers, a suitable division of labor, and whatever else would add to the efficiency of the process. Capital's value is the sum of the values of the commodities in play. Let's say that a certain construction company has a bulldozer, two trucks, and a number of employees with shovels. Their product is a drainage ditch. The value of the ditch itself is not a collection of material. It is the absence of material, because material was removed to create it. And yet, the ditch has value. How much?

The value of the shovels is the labor power that went into their creation. The value of the bulldozer and trucks also comes from the labor power that created them, although the process is more complicated than building shovels. The value of the labor power of the employees, too, is the cost of their creation. That labor power is expended on building the ditch. Part of the value of the shovels, trucks, and bulldozer is amortized into the cost of the ditch as well. The sum is the value of the ditch. If that ditch is used in some further commodity production, then part of its value must be added into the value of the new product.

What Happens Next?

Capitalists strive against one another. The big ones destroy the little ones. People who are comfortable in a middle class position usually have to fight hard just to stay where they are. Usually, they are driven into the working class, where they will sell their labor power like any other worker.

To increase their profits, capitalists try to drive wages down. One might find examples where a given corporation made more profits in the same year that it increased wages, but they would have made even more profits if wages had fallen. The relationship is inverse.

The capitalists in the ditch digging example attempt to lower the cost of production in order to compete with other capitalists. In general, that means using more machinery and less labor power. Consequently, they are constantly pressuring wages downward. It is a long-run impossibility, one may quickly see, to push wages down lower than their cost of production, the livelihood of the workers. However, Marx points out in a more advanced work, "They always try."

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