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With the inauguration of the Biden administration, raising the federal minimum wage from its egregiously low level of $7.25 an hour is back on the political agenda in Washington, D.C. In recent years, activists across the county have convinced some cities and other jurisdictions to approve a higher minimum wage as part of the “Fight for $15.” Unfortunately, in many cases these moves have often been overruled by state legislatures dominated by the Republican Party.
The blockage of these initiatives at the state level signals the necessity of raising the minimum wage at the federal level. While a proposal for a $15 minimum ultimately did not make it into the Covid-19 relief bill working its way through Congress, it is clear that raising needs to be a priority, both for President Biden and for the Democratic majority in both the House and the Senate.
As the President recently pointed out, “No one should work 40 hours a week and live below the poverty wage. And if you’re making less than $15 an hour, you’re living below the poverty wage.”
However, as Biden himself admits, this proposal sets a rather low bar. While raising the minimum wage to $15 an hour would reduce the dependence of many households on welfare and other government benefits to make ends meet, it would probably not increase their quality of life to a significant degree; it would probably also not help many workers and their families escape poverty.
Instead, making a real difference in the lives of workers requires more than just a hike in the minimum wage; it requires a rethinking of the capitalist system itself—as both Adam Smith and Karl Marx understood.
The writers who shaped our initial understanding of how markets function in commercial societies, including Adam Smith, all expected the wages of workers to hover around subsistence. This was due to the structural advantage that the owners of capital have over their workers. While capitalists need their employees to work in order to turn a profit, members of the working class need regular wages in order to survive. While the former can hold out for long periods of time, Smith notes, “Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment.”
This is a bleak picture. In theory it allows the owners of capital to reduce wages indefinitely. However, there is a lower bound. As Smith points out, the wages of the worker “must at least be sufficient to maintain him.”
In fact, except in cases where there is such an oversupply of labor that capitalists need not care about the survival of their employees because they can always find more to take their place, Smith observes that wages “must even upon most occasions be somewhat more; otherwise it would be impossible for [the worker] to bring up a family, and the race of such workmen could not last beyond the first generation.” Still, the structural advantage employers have over their employees means that wages will inevitably tend towards subsistence in the long term.
Like Smith, Marx too assumes that employers have power over workers, who are forced to sell their ability to work—their “labor-power,” in his terminology – to the capitalist in order to survive. Because the employer only needs workers to be able to survive and reproduce in order to keep taking advantage of their ability to work, Marx argues that “the value of labor-power is the value of the means of subsistence necessary for the maintenance of the laborer.”
The ability of capitalists to keep the wages of their employees at subsistence levels is crucial to understanding Marx’s analysis of capitalist exploitation. The key point is this: because capitalists have to pay workers a subsistence wage before generating a profit, they are incentivized to increase the number of hours that their employees have to work to earn this wage, a phenomenon that Marx refers to as “surplus labor.” In fact, it is in the financial interest of the owners of capital to decrease the amount of time needed to generate the profits necessary to pay out the subsistence wages of their workers, while increasing the additional labor time as much as possible in order to generate ever larger profits.
The result, as Marx points out, is that capitalism “diminishes labor time in the necessary form so as to increase it in the superfluous form,” i.e. in the form that leads to higher returns on investment. The fact that surplus labor is used to generate profit for the owners of capital explains why the capitalist system forces workers to work more hours for the same subsistence wage, instead of providing them more free time to pursue their other interests and express their human nature as what Marx calls “free conscious producers.”
The result is a new form of domination, which Marx calls “wage slavery.” Just as the subsistence of slaves must be maintained so that their owners can continue to exploit their labor, so the wages of capitalist workers must be kept at levels high enough to ensure their survival. While it is true that capitalist workers participate in “free” labor markets, in the sense that they are able to choose their employer, much like slaves they are not free to choose not to work. The main difference is that while the needs of slaves are met directly by their masters, capitalist workers must be given enough money to ensure that they can purchase the food and the other goods they need to ensure the survival of themselves and their families.
Contemporary economists have abandoned many of the assumptions that underlie the theory of subsistence wages endorsed by both Smith and Marx. However, despite the many changes that have occurred in the meantime, the same structural power dynamics that define relations between workers and their employers as identified by Smith and Marx continue to apply.
Marx’s analysis of capitalist exploitation shows us that the fundamental problem is not that the minimum wage is too low—although it is—but that the surplus value (profits) generated by capitalism is still primarily claimed by the owners of capital (managers, shareholders, investors, etc.). It is only by more equitably distributing the profits generated by our productive capacities that we can truly increase the quality of life of the working classes.
How might this be done? The distribution of profits to workers in the form of higher wages is certainly one way to go about solving this problem. Interestingly enough, however, this is not Marx’s solution. In fact, Marx explicitly rejects the ideas that the profit generated by surplus value should go to the laborer in the form of higher wages.
This may seem surprising, but it is actually consistent with the principles of capitalist production that Marx identifies. Because of the mutual cooperation that is necessary for workers to manufacture specialized goods that require many different steps to create, Marx argues that surplus value does not belong to any of them individually; instead, it belongs to them collectively.
In the Communist Manifesto he and Friedrich Engels point out that “Capital is a collective product, and only by the united action of many members, nay, in the last resort, only by the united action of all members of society, can it be set in motion.” Since surplus value is the product of the “social power” of many individuals working together, Marx points out that its profits too should belong to society as a whole. This conclusion leads him to argue that the decisions about what to do with this socially generated surplus must be collective as well.
As the vast majority of economists on the left agree, the Fight for $15 and raising minimum wages is a good start. However, what Marx’s reflections on capitalism show us is that if the left truly wants to increase the quality of life of its workers, it must access, and collectively redeploy for the common good, the surplus value collectively generated by modern forms of production.
Peter J. Verovšek is an Assistant Professor in Politics/International Relations at the University of Sheffield.