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The Militant, 17 August 1946

Warren Creel

Wages, Prices and Profits

The Law of Labor Value Controls Prices

From The Militant, Vol. X No. 33, 17 August 1946, p. 6.
Transcribed & marked up by Einde O’Callaghan for ETOL.


Last week’s column covered the fact that blind capitalist anarchy controls both the level of prices and the amount of production of commodities under capitalism.

It was pointed out that capitalist anarchy keeps the system swinging between two evils, surplus and scarcity. When there is too much of some commodity for the capitalist market, then the price of it goes down, factories close, workers lose their jobs. After production has gone down enough to suit the blind system it gives notice by a scarcity. Then prices go up and some people have to go without the goods. At the same time rising prices bring an increase in production.

So the amount of production of any type of goods is controlled by the price. When the price goes low, production in that line goes down, when the price goes up, the result is an increase in the amount of production.

This raises another question. Production goes up or down when prices go above or below what point? We assume that a high price is above the normal price, and a low price is below normal. But what sets the normal price?

The origin of the normal level of prices can be seen best in an illustration from simple commodity production, in which the makers sell the commodities which they themselves make.

Suppose a producer on a simple basis makes a coat, and he has to spend one day of work in making it. The coat, then, contains one day’s labor. Or we might say the labor-value of the coat comes to one day of labor time.

Normal Rule Sometimes Modified

Suppose another producer has to spend one day to make a pair of shoes. The labor-value of the shoes also is one day’s labor time. All other things being equal, in normal exchange the coat and the shoes would be of equal worth. That is, one coat would trade for one pair of shoes.

For a short time it would be different. Coats might be scarce, so that one coat would trade for two pairs of shoes. So long as that lasted, a tailor, by one day of work could get the fruits of two days of work by a shoemaker. This would mean that coats were bringing a high price. It would be good business to get out of shoemaking and move into tailoring, which was getting better prices, so producers would start changing to the better-paying trade. With more tailors making coats, soon the supply of coats would go up until they no longer were scarce, and the price would come down to normal. Then the shifting would stop.

The “normal” price, or exchange-value, of goods is equal to the socially necessary labor time required in producing them. That is, roughly speaking, the product of a day’s work in one line will trade for the product of a day’s work in another.

In an earlier column it was said that we should begin by finding the normal rule of control of prices, and then go on to see how the rule is modified or stretched in particular cases. We have come to the basic normal rule of prices in the capitalist market. It is that exchange-values, or prices, are equal to the labor-value of commodities.

Wages Are the Price of Labor Power

This is the law of labor-value, out of which grows the control of prices and of the amount of production under capitalism. It springs from no regulation except the endless see-saw of the capitalist anarchy, shifting back and forth from surplus to scarcity. Prices swing around this normal point of labor-value, they do not stay on it. But it is this very shifting above and below normal, and the surplus and scarcity that come with it, that enforces the law of labor-value as the general tendency.

The illustration of tailors and shoemakers covered only simple commodity production. But it is easy to see that in modern factory production with hired wage workers the same general rule would operate, though in a more complex form. The factory owner must take into account his expenses for machinery, for materials and so on, which in the end means the amount of labor in those things. Counting all that in, let us suppose the same situation in factory production that was supposed in simple production: In other words, suppose that temporarily the profits in clothing production rose above those in shoe production. Business activity and financing would shift at once from shoes to clothing. Fewer shoes would be made until scarcity of shoes equalized prices with labor-values and brought the price of shoes up again.

Wages are a price, the price at which we sell our laborpower. Next week’s column will take up the effects of the control of wages by the law of labor-value.

Next week: Wages and Surplus-Value

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Last updated on 26 June 2021