Commentary on Political Economy

Wednesday 26 October 2011

Keynes and the Wage Relation – The Money Wage as the Fundamental Unit of the Society of Capital

“In the long run, we’re all dead” marks an important turning point in the intellectual prise de conscience of the bourgeoisie: capitalism is not “the end of history”; its “economics” does not embody “the truth” – it is not a “revelation”. Capitalism is a product of human history and, like all historical artefacts, its time will come too. The only “certainty” is not that of the mathematical equations of Walrasian general equilibrium: the only “certainty” this side of “death” is “uncertainty”. Nothing is absolute, and nothing is infallible or imperishable. If we wish to preserve this “particular form” of “economic society”, we – “we” the bourgeoisie – must ensure its survival: and survival means “reproduction”, and reproduction means the co-ordination of economic activity in a manner that remains fundamentally capitalist but that does not threaten the reproduction of the society of capital, and that means “reproduction of the wage relation”. Now, reproduction of the wage relation means ensuring a level of employment that is as close to full employment as can be consistent with the reproduction of the wage relation.

This implies at least two things: first, the wage must not be so high that wage labourers refuse to alienate their living labour for capital to exploit on an expanded scale; and secondly that the wage does not fall so low that the investment decisions of capitalists in terms of the future stream of income – in other words, the “profitability” of capital – is not jeopardized by making formerly “less profitable” investments become more profitable. If the “future” of capitalism is to be secured, then the “profitability” of current capitalist investment must also be secured. Differently put, the “financial gearing” of investment must be “geared” in harmony or co-ordination with the antagonism of the wage relation expressed “financially”, in monetary units, so that the “expected future yield” from present investment is compatible with the expanded reproduction of living labour and therefore with the wage relation!

The implications of this realization are absolutely enormous and astounding. First among all bourgeois economists, in a feat almost equaling the political analytical genius of a Karl Marx, Keynes perceives that the “financial pyramid” of finance capital must be trans-formed from a “casino capitalism” into a co-ordinated and “planned” maintenance of output and employment by using the money wage as “the fundamental unit” of calculation of the total final demand (aggregate demand and, more specifically, “effective demand”) of the capitalist system regardless of what individual capitalists might decide or think! The very “expectations” of individual capitalists, the “animal spirits” of “private investors” must be adjusted “socially”, “collectively” through the monetary medium – through the fundamental “unit” of the money wage – so that a debt-deflation, a “financial panic” is “politically” avoided!! “We, the bourgeoisie” must know that, in the words of President Roosevelt in the Inauguration Speech of February 1933: “ALL WE HAVE TO FEAR IS FEAR ITSELF!”

Death is the only “certainty”. This side of death there is only “uncertainty”: from Heisenberg to Einstein to Heidegger, Keynes’s language and thought closely parallels the “existential crisis” not just of the bourgeois Individualitat that even Schumpeter has abandoned with his “obsolescence of the entrepreneurial function”, that Weber had abandoned with his “iron cage”, that Nietzsche had prophesised with his Will to Power: if the only certainty is death and this side of the “long run” is “uncertainty”, then we need a point of reference – the equivalent of a Heideggerian Da-sein, a Lichtung, a beam of light, to show us the way in the “world of being” that has been “obscured” by the War and the Depression. And that “point of reference” can be only the “actual employment” of social resources, “the annexation of the future”, the control of the monetary “bridge” to the future, - and that must pass through the control of the wage relation whose fundamental “social institutional expression” is the money wage!

The Great War was the last “European civil war”. Just as in the 1640s when Thomas Hobbes was confronted with the English Civil War at the very dawn of bourgeois capitalist society, the only answer to civil war is the abandonment of “individual choice” in the face of death (!) in favour of the establishment of a State-Machine, of a Leviathan, that can stop us from fearing fear itself!

Let us leap without further ado to Part Two of the General Theory, the part on “Definitions and Ideas”. There it is! Chapter 4 on “The Money Wage”, section II:

That the units, in terms of which economists commonly work, are unsatisfactory can be illustrated by the concepts of the National Dividend, the stock of real capital and the general price-level: --
(i) The National Dividend, as defined by Marshall [p.38] and Professor Pigou, [1] measures the volume of current output or real income and not the value of output or money-income. [2] Furthermore, it depends, in some sense, on net output;¾on the net addition, that is to say, to the resources of the community available for consumption or for retention as capital stock, due to the economic activities and sacrifices of the current period, after allowing for the wastage of the stock of real capital existing at the commencement of the period. On this basis an attempt is made to erect a quantitative science. But it is a grave objection to this definition for such a purpose that the community's output of goods and services is a non-homogeneous complex which cannot be measured, strictly speaking, except in certain special cases, as for example when all the items of one output are included in the same proportions in another output.

“A measure! A measure! My kingdom for a measure!” Just as Einstein found the speed of light as the fundamental constant of the universe, just as Heidegger finds in death the “”lighting” of Da-sein (being there), so now does Keynes need a measure, a unit, an indication of the level of antagonism of living labour against the wage relation in a capitalist society that needs to trans-form itself into a “society of capital” in which “the control of growth becomes the growth of control”! But this must be a “measure” that is not indicated in “real” terms because it will be quite impossible then to relate this “measure” to the specifically capitalist “condensation” of command over living labour in terms of “value”, of exchange value, and then utterly impossible to co-ordinate this “real measure” with the financial pyramid of future income streams from present investments. “Real wages” will never be able to tell us what the future relations of political power between workers and capital will be: only the money wage can allow the State to act “collectively” and “in aggregate” to mediate and negotiate and buffer and co-ordinate the political social antagonism that the wage relation generates.

Just listen to Keynes! Read carefully please!! Because the problem of “measurement” becomes especially dire and diabolical where “the command of capital over living labour” through the wage is concerned with “the future”! At that level, the real wage cannot even remotely be used to homologate and homogenize the levels of industrial antagonism across different branches of capitalist production and across “periods” of investment! This can be done “only” (!) in terms of a “measure” that expresses “value” – that is, the homogenized expression of antagonism across the aggregate monetary expression of social capital:

(ii) The difficulty is even greater when, in order to calculate net output, we try to measure the net addition to capital equipment; for we have to find some basis for a quantitative comparison between the new items of equipment produced during the period and the old items which have perished by wastage. In order to arrive at the net National Dividend, Professor Pigou [3] deducts such obsolescence, etc., "as may fairly be called 'normal'; and the practical test of normality is that the depletion is sufficiently regular to be foreseen, if not in detail, at least in the large". But, since this deduction is not a deduction in terms of money, he is involved in assuming that there can be a change in physical quantity, although there has been no physical [p.39] change; i.e. he is covertly introducing changes in value. Moreover, he is unable to devise any satisfactory formula [1] to evaluate new equipment against old when, owing to changes in technique, the two are not identical. I believe that the concept at which Professor Pigou is aiming is the right and appropriate concept for economic analysis. But, until a satisfactory system of units has been adopted, its precise definition is an impossible task. The problem of comparing one real output with another and of then calculating net output by setting off new items of equipment against the wastage of old items presents conundrums which permit, one can confidently say, of no solution.

Not only is there “the problem of comparing one real output with another”; but, more important, there is the far greater problem “of then calculating net output by setting off new items of equipment against the wastage of old items” when there have been "changes in technique"! We will deal with this exquisitely Schumpeterian problem of "innovation" later, which Keynes ("the father of stagnation", completely overlooks!). For now, the “problem” is “to bridge” and homogenize the political command of capital over living labour not just “across sectors” of capitalist industry, but also “across periods” of investment, “between the present and the future”! And, as Keynes says, only “money” can do that, and only “the money wage” can “ground” institutionally the political command of capital. Here is Keynes again:

In dealing with the theory of employment I propose, therefore, to make use of only two fundamental units of quantity, namely, quantities of money-value and quantities of employment. The first of these is strictly homogeneous, and the second can be made so. For, in so far as different grades and kinds of labour and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined for our purpose by taking an hour's employment of ordinary labour as our unit and weighting an hour's employment of special labour in proportion to its remuneration; i.e. an hour of special labour remunerated at double ordinary rates will count as two units. We shall call the unit in which the quantity of employment is measured the labour-unit; and the money-wage of a labour-unit we shall call the wage-unit.[1]

We will look at Keynes’s underlying assumptions on real wages next.


  1. It still needs to be seen if the correlation has a direct affect. The capital adjusts as well.

  2. Of course, wage or salary is the fundamental unit of a capitalist society. An individual who is underpaid may not be able to provide for his / her daily needs.

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