THE ANALYSIS OF DISTRIBUTION

Marx had enough in common with the classical tradition to give a prominent place in his model to the mechanisms of income distribution. Indeed, the laws governing distribution were crucial to his account of the dynamics of the capitalist mode of production.

Nevertheless, Marx appropriated from the mainstream of classicism two of its main conclusions about the behaviour of distributive shares during a period of dynamic change. In both models the real wage was expected to gravitate around a subsistence norm and the rate of profit was expected to fall. Marx's solution, however, was distinctive in that he offered an entirely different explanation for these phenomena.

The classical account of the behaviour of real wages, it will be recalled, was organized around Malthusian population postulates. Marx, for reasons indicated earlier, was determined to demolish the Malthusian approach to this matter. In his view the basic explanation for the perpetuation of subsistence wages was rooted in the mechanics of the capitalistic system. The process of technological displacement - which followed as an inevitable consequence of accumulation - meant that the reserve army of unemployed was swollen. On this point he asserted that ‘... it is capitalist accumulation itself that constantly produces and produces in

the direct ratio of its own energy and extent, a relatively redundant population of labourers, i.e.

The existence of this reserve army was sufficient to explain the tendency for real wages to be tied to subsistence. As long as capitalists could tap unemployed workers to replace any among those employed who sought higher pay, there was no reason to expect the circumstances of the poor to improve. On this point Marx directly challenged the classical view that workers should be encouraged to limit their reproductive rates in the interests of restricting the labour supply and of enhancing their bargaining prospects. He described as 'folly' that 'economic wisdom that preaches to the labourers the accommodation of their number to the requirements of capital. The mechanism of capitalist production and accumulation constantly effects this adjustment. The first work of this adaptation is the creation of a relative surplus-population, or industrial reserve-army.'30

It did not follow, however, that the real wage would never deviate from the subsistence level. For short periods it was at least conceivable that unusually intense demand for labour might bid wage rates beyond the tolerable minimum. Even Malthus had recognized that this might occur. In both the Marxian and classical traditions it was held that any tendency in this direction would soon be offset by forces inherent within the economic system - forces that would depress wages back toward their 'natural' level. But quite different explanations of this phenomenon were offered by the classical and the Marxian analyses. Malthus saw the adjustment occurring on the supply side of the labour market; improvements in the real wage, he had argued, would lead to increases in the labour force which would compete wage rates downward. Marx, on the other hand, saw the adjustment as occurring in the demand for labour. He described the path toward the restoration of the subsistence norm as follows:

If the quantity of unpaid labour supplied by the working class, and accumulated by the capitalist class, increases so rapidly that its conversion into capital requires an extraordinary addition of paid labour, then wages rise, and, all other circumstances remaining equal, the unpaid labour diminishes in proportion.

Marx thus arrived at the classical conclusion about the behaviour of real wages during a period of economic expansion via a different route. By the same token he offered an alternative explanation of another classical phenomenon: the long-term tendency for the rate of profit to fall. Within the classical tradition, the behaviour of profits was analysed primarily in terms of the redistribution of income between the shares of profits and rent. Productive conditions in agriculture, it had been argued, led to rising rents and to increases in the price of subsistence goods. Higher money wage payments would thus be required in order to maintain the subsistence wage. Capitalist employers, by virtue of rising w obliged to accept lower rates of return on their capital outlays.

This line of explanation was obviously closed to Marx. Having eliminated the classical concept of rent from his analysis and having denied the existence of significant differences in the productive conditions of industry and agriculture, he could not invoke rising food costs in his account of the behaviour of profits. Instead he chose to develop the argument around changes in the values of his three fundamental ratios: the rate of surplus value (or of exploitation) (s/v); the organic composition of capital (c/v); and the rate of profit (s/c+v).32

The analysis of the behaviour of one of these ratios - that of the organic composition of capital - presented no complications. The bulk of the Marxian model had already been developed around the view that the pressure on capitalists to accumulate would mean that outlays for constant capital would grow faster than expenditures on variable capital. If Marxian propositions on the technological unemployment supposedly generated by the accumulation of capital were accepted, it then necessarily followed that the organic composition of capital would rise.

The behaviour of the rate of surplus value (or the rate of exploitation) was less straightforward. In the bulk of his numerical illustrations Marx suggested that this rate was 100 per cent; i.e. that the wage bill and surplus of the capitalist were equal. Marx nowhere argued explicitly that the rate of surplus value should be regarded as a constant, nor did he demonstrate that it should be 100 per cent. He did maintain, however, that the inner mechanics of the capitalist system prevented more than temporary reduction in the established rate of surplus value on the ground that any tendency for wages to rise would be countered by increased investment in labour-displacing machinery.33

An increase in the rate of exploitation, however, was not precluded. Reductions in the labour-inputs required to produce the commodities entering into the subsistence wage would make it possible to extend surplus labour time at the expense of necessary labour time. Nevertheless, Marx appeared to have assumed that the rate of exploitation was, in fact, constant.

If the assumption of a constant rate of exploitation is combined with a rising organic composition of capital it follows that the rate of profit (s/c+v ) must fall. When s and v are equal and c is growing at a faster rate than either s or v, the value of the denominator in this expression increases more rapidly than the value of the numerator. In this fashion Marx could reach a conclusion similar to the one arrived at by classical economists on the long-term behaviour of the rate of profit.34

This line of argument was not without pitfalls. In particular, one of its conclusions contradicted a vital piece of Marx's earlier argument on the course of real wages. Presumably the process of capital accumulation raises the productivity of labour and increases the size of the net product (v+s). When the proportion of s to v remains constant, growth in the size of the net product would imply that total wage payments (v) increased - and quite probably at a faster rate than the volume of employment was likely to grow. Mechanization, after all, was expected to suppress the rate of growth in the demand for labour. This outcome, however, would imply that the portion of the labour force remaining in employment would enjoy

improvements in real earnings. The prospect that sustained increases in real wages might occur under capitalism cannot be reconciled with the main thrust of Marxian argument, nor can this conclusion be reconciled analytically with the existence of a reserve army of unemployed. Marx appeared to have been unaware of this inconsistency in his analysis.

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