Capitalism and productivity

Posted: 17 August 2016 in Uncategorized
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From the very beginning, one of the central claims on behalf of capitalism has been that it leads to increases in productivity—and, as a result, an increase in the wealth of nations. The idea is that, the more national wealth increases (the more commodities are produced per person hour worked), the higher living standards of ordinary people will be (i.e., real wages will increase).* We find that story in pretty much every text of mainstream economics, from Adam Smith to Deirdre McCloskey.

That’s why Karl Marx spent so much time (hundreds of pages, in fact) discussing productivity (along with machinery, mechanization, technical change, and so forth) in his critique of political economy. So, John Cassidy gets it wrong.

Marx (not to mention other nineteenth-century critics of capitalism) never denied that there was a connection between increases in productivity and a rise in workers’ wages. That would be silly, both theoretically and empirically. All he ever did was deny there’s an automatic or necessary relationship between them—and, perhaps more important, that increases in real wages didn’t mean workers weren’t being increasingly exploited.



The first point (one even Cassidy, in a way, concedes) is easy to show: for a time (until 1973 or so, in the United States), workers’ real wages increased at roughly the same rate as productivity. Then (from 1973 onward), productivity continued to grow but workers’ wages stagnated.

One key question, for the pre-1973 period, is why productivity and workers’ real wages increased in tandem. Cassidy assumes that wages grew because of the increases in productivity. Nothing could be further from the truth. The explanation for the increases in productivity (having to do with the growth of manufacturing, capitalist competition, the role of U.S. corporations in the world economy, and so on) is separate from the change in wages (based on fast economic growth, unionization, a shortage of labor power, and so on). There’s simply no automatic relationship between increases in productivity and increases in real wages, which has been confirmed by their divergence after 1973.

The second point is, in my view, even more important. It’s possible for workers’ wages to increase (at or even above the rate of growth of productivity) and for capitalist exploitation to also be rising.

Let me explain. In Marxian theory, the rate of exploitation (s/v) is the ratio of surplus-value (s) to the value of labor power (v). The value of labor power is, in turn, equal to the exchange-value per unit use-value (e), or price, of the commodities in the wage bundle (q), or the real wage. So, we have v = e*q and, in terms of rates of change, Δv/v = Δe/e + Δq/q. Mathematically, exploitation can increase (Marx referred to it as relative surplus-value) if the value of labor power is decreasing (Δv/v is negative) even if real wages are going up (Δq/q is positive) as along as the change in the price of wage commodities is negative (Δe/e) and its absolute value is greater than the change in real wages (|Δe/e| > |Δq/q|).

For example, in terms of numbers: if real wages increase by 10 percent (workers are buying more things) but the prices of the items in the wage bundle (food, clothing, shelter) decrease by 20 percent, then the value of labor power (what capitalists have to pay to get access to the commodity labor power) will decrease by 10 percent. Voilà! Higher real wages can be (and, throughout much of the history of U.S. capitalism, have been) accompanied by rising exploitation.

And that’s precisely one of the effects of increasing productivity: it lowers the exchange-value per unit use-value of wage commodities.** Less labor is embodied in each unit of bread, shirts, and housing. The fact that workers are able to purchase more of those commodities (say, at the same rate as productivity is increasing) doesn’t mean exploitation is not also increasing.

That’s even more the case when real wages are stagnant (Δq/q is equal to zero). Then, the decline in the price of wage goods (again,  decreasing by 20 percent) is translated directly into an increase in exploitation (via a 20 percent decrease in v).

But what if rate of growth of domestic productivity begins to decline (as it did after 1973, and even more so in recent years)? Then, the domestic contribution to the decline in the price of wage commodities would fall (say, to 10 percent). But, at the same time, if jobs are offshored and cheaper wage goods are imported from abroad (think Walmart), that also leads to a decline in the price of wage goods (say, by another 10 percent). So, even with declining domestic productivity growth, the combination of domestic production and imported goods can lead to a decline in the price of wage goods (for a total, as before, of 20 percent) that, with constant real wages, decreases the value of labor power (by 20 percent) and increases the rate of exploitation.

So, while Cassidy and many others are worried about a slowdown in productivity growth (linking it to workers’ wages and living standards), workers know that increases in productivity don’t automatically lead to increases in real wages. And even if real wages do rise, it’s still likely they’ll be more exploited than before.

Their employers, not they, will be ones to benefit.


*It is merely presumed that the standard of living of those at the top, the capitalists and other members of the 1 percent, would be just fine.

**Another, separate issue is why productivity itself might increase. The Marxian argument is that, during the course of competing over “super-profits,” that is distributions of the surplus-value among and between capitalist enterprises, capitalists will engage in technical change, which in turn leads to increases in productivity and a decline in the value of the commodities they produce. An interesting question, then, is why productivity in the United States and other advanced countries has slowed down. One reason may be a decline in competitive pressures among enterprises that produce goods and services.

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