Let the average composition of the social capital be 80c + 20ν, and profit 20 per cent. In this case the rate of surplus-value is 100 per cent. A general rise in wages, everything else being equal, means a fall in the rate of surplus-value. For the average capital, profit and surplus-value coincide. Say that wages rise by 25 per cent. The same amount of labour which previously cost 20 to set in motion now costs 25. We then have a turnover value of 80c + 25ν + 15s, instead of 80c + 20ν + 20s. The labour set in motion by the variable capital still produces a value sum of 40, as before. But if ν rises from 20 to 25, the excess s or p is now only 15. A profit of 15 on 105 is 14 2/7 per cent, and this would be the new average rate of profit. Since the production price of commodities produced by the average capital coincides with their value, the production price of these commodities would not have changed. The increase in wages would therefore involve a decline in profit, but no change in the value of commodities or their price of production.
Previously, when the average rate of profit was 20 per cent, the production price of the commodities produced in one turnover period was equal to their cost price plus a profit of 20 per cent on this, i.e. k + kp′ = k + 20k/100; here k is a variable magnitude differing according to the value of the means of production that go into the commodities and according to the amount of depreciation that the fixed capital employed in their production surrenders to the product. After the rise in wages, the production price would now come to k + 14 2/7 k/100.
Let us first take a capital whose composition is lower than the original composition of the average social capital 80c + 20ν (which has now been changed to 76 4/21c + 23 17/21ν);* for example, 50c + 50ν. If we assume for the sake of simplification that the entire fixed capital goes into the annual product as depreciation and that the turnover time is the same as in case I, the production price of the annual product would have amounted, before the rise in wages, to 50c + 50ν + 20p = 120. A wage rise of 25 per cent means a rise in variable capital from 50 to 62 1/2 for the same amount of labour set in motion. If the annual product were sold at the former production price of 120, this would give us 50c + 62 1/2ν + 7 1/2p, i.e. a profit rate of 6 2/3 per cent. The new average rate of profit, however, is 2/7 per cent, and since we take all other circumstances as remaining the same, our capital of 50c + 62 1/2ν must also make this profit. A capital of 112 1/2, at a profit rate of 2/7 per cent, makes a profit of 16 1/14. The production price of the commodities it produces is therefore now 50c + 62 1/2 + 16 1/14p = 128 8/14. As a result of the wage rise of 25 per cent, the price of production of the same quantity of the same commodity has risen from 120 to 8/14, or by more than 7 per cent.
Let us now take a sphere of production with a higher composition than the average capital, e.g. 92c + 8ν. The original average profit here is also 20, and if we again assume that the entire fixed capital goes into the annual product, and that the turnover time is the same as in the first two cases, the production price of the commodities is also 120.
As a result of the 25 per cent wage rise, the variable capital grows from 8 to 10, for the same amount of labour, and the cost price of the commodities therefore grows from 100 to 102, while the average profit rate of 20 per cent falls to 2/7 per cent. But 100: 2/7 = 102:14 4/7. The profit that now accrues to 102 is therefore 14 4/7, and the total product is therefore sold at k + kp′ = 102 + 14 4/7 = 116 4/7. The production price has thus fallen from 120 to 116 4/7, or by 3 3/7.
The result of the wage rise of 25 per cent is thus as follows:
(I) for capital of an average social composition, the commodity’s price of production remains unchanged;
(II) for capital of a lower composition, the production price rises, though not in the same ratio as the profit has fallen;
(III) for capital of a higher composition, the production price falls, though again not in the same ratio as the profit.
Since the production price of commodities produced by the average capital has remained the same, namely equal to the value of the product, the sum of production prices for the products of all capitals has also remained the same, namely equal to the sum of values produced by the total capital; the rises on the one hand and the falls on the other balance out at the level of the socially average capital, taking this over the entire capital of the society.
If the production price for commodities in example II rises, while it falls in example III, this opposite effect which is produced by the fall in the rate of surplus-value or the general rise in wages already shows how there can be no corresponding compensation in prices for the rise in wages, since in example III the fall in the price of production can in no way compensate the capitalists for the fall in their profit, while in example II the rise in price still does not prevent a fall in profit. In each case, rather, both where the price rises and where it falls, profit is the same as for the average capital, whose prices remain unaffected. It is the same for both II and III, a fall in the average profit of 5 5/7 per cent, or somewhat over 25 per cent [of the original rate]. It follows from this that, if the price did not rise in example II and fall in example III, II would be sold at less than the new, lower, average profit, and III at more than this. It is immediately clear that according to whether 50, 25 or 10 out of every 100 units of capital are laid out on labour, a rise in wages will necessarily have very different effects on a capitalist who lays out a tenth of his capital on wages, one who lays out a quarter, and one who lays out a half. The rise in the price of production on the one hand and its fall on the other, according to whether the capital involved has a lower or higher composition than the social average, is accomplished only by the process of equalization at the new, lower, average rate of profit.
How then would the prices of production of commodities produced by capitals that diverge in contrary directions from the social average composition be affected by a general fall in wages, with a corresponding general rise in the rate of profit, and hence in average profits? We have simply to turn the above example round to obtain the result (a result which Ricardo does not investigate).
I. Average capital 80c + 20ν = 100; rate of surplus-value 100 per cent; production price = commodity value = 80c + 20ν + 20p = 120; rate of profit 20 per cent. If wages fall by a quarter, the same constant capital will be set in motion by 15ν instead of by 20ν. We then have a commodity value of 80c + 15ν + 25p = 120. The quantity of labour produced by v remains unaffected, except that the new value it creates is differently distributed between capitalist and worker. The surplus-value has risen from 20 to 25, and the rate of surplus-value from 20/20 to 25/15, i.e. from 100 per cent to 166 2/3 per cent. The profit is now 25 on 95, and the profit rate therefore 26 6/19 per cent. The new percentage composition of capital is now 84 4/19c + 15 15/19ν = 100.
II. Below average composition. Originally 50c + 50ν as above. The wage cut of a quarter reduces ν to 37 1/2, and the total capital advanced therefore to 50c + 37 1/2ν = 87 1/2. If we apply to this the new rate of profit of 26 6/19 per cent, we get 100: 26 6/19 = 87 1/2: 23 1/38. The same mass of commodities that previously cost 120 now costs 87 1/2 + 23 1/38 = 110 10/19; a fall in price of almost 10.
III. Above average composition. Originally 92c + 8ν = 100. The wage cut of a quarter reduces 8ν to 6ν and the total capital to 98. 100:26 6/19 = 98:25 15/19. The production price of the commodities, which was previously 100 + 20 = 120, is now, after the fall in wages, 98 + 25 15/19 = 123 15/19; i.e. a rise of almost 4.
We can thus see how it is only necessary to pursue the same development as before in the reverse direction and make the requisite changes; the conclusion is that a general fall in wages leads to a general rise in surplus-value, in the rate of surplus-value, and with other things remaining equal, also in the profit rate, even if in a different proportion; it leads to a fall in production prices for the commodity products of capitals of lower than average composition and a rise in production prices for the commodity products of capitals of higher than average composition. Exactly the opposite result as that which arose from a general rise in wages.34 In both cases, that of a rise in wages and that of a fall, the working day is assumed to remain the same, and so are the prices of all necessary means of subsistence. A fall in wages is thus only possible here either if wages previously stood above the normal price of labour, or if they are now to be pushed below it. How the matter is affected if the rise or fall in wages derives from a change in the values and hence in the production prices of commodities that customarily go into the workers’ consumption will in part be further investigated below, in the section on ground-rent. The following points, however, have to be made here once and for all:
If the rise or fall in wages results from a change in the value of the necessary means of subsistence, the only modification of the process analysed above occurs when the commodities whose price-changes serve to increase or lessen the variable capital also enter as constituent elements into the constant capital and hence do not simply affect wages. But in so far as they do only affect wages, the above argument contains all that has to be said.
In this entire chapter, we have assumed that the establishment of a general rate of profit, an average profit, and thus also the transformation of values into production prices, is a given fact. All that has been asked is how a general rise or fall in wages affects the prices of production of commodities, prices we have assumed to be given in advance. This is a very secondary question compared with the other important points which have been dealt with in this Part. Yet it is the only question Ricardo deals with which is relevant here, and as we shall see he deals with it only in a one-sided and inadequate way.*