How might a reduction of hours of labor affect profits?

by Jehu

stock_chartAfter realizing Borsch-Supan ignored the impact of labor hours reduction on profits — he never mentions profits even once in the entire paper — it finally sunk into my thick skull that “the economy” would respond to a reduction in hours of labor in much the same way that it responds to a fall in the rate of profit resulting from other causes. This had occurred to me perhaps a year ago, but somehow I forgot it when looking at Borsch-Supan’s paper. That  realization was triggered by this ridiculous statement:

“If productivity rises due to lower work hours, the increase in unit labor costs due to rising effective hourly wages is dampened, and the effect of an hours reduction on unit labor costs may become ambiguous.

“Indeed, here is a handle for positive total employment effects (measured in workerhours) if productivity increases more than proportionally to the hours reduction. In this case, unit labor costs decline, labor demand increases, and unemployment could be reduced if the unemployment pool provides the qualifications needed. Thus, an engine for positive employment effects can be hidden in production inefficiencies due to overly long work hours or other bad practices in work organization.”

Borsch-Supan argues that if productivity of labor increases more than labor hours decline, real labor costs will decline and employment will increase due to lower real labor costs. The argument shows that, like most bourgeois simpletons, he thinks employment increases because real wages fall. The problem with Borsch-Supan’s argument about productivity is that the capitalist doesn’t pay for labor power. Yes, the worker is paid a wage for her labor power, but she advances her labor power on credit to the capitalist who gets to employ it for the production of surplus value gratis. Having received the worker’s labor power on credit, the capitalists must then figure out how to squeeze the maximum quantity of surplus value from the labor power in the time available to exploit it. The price of labor power plays no role in this effort. Instead the worker gets her wages only after the capitalist already has employed her labor power to create surplus value as well as the value of her wages.

So, one of the more curious aspects of Borsch-Supan’s paper is his complete silence on the question of the impact hours reduction has on profits. It seems obvious to me that if reducing hours of labor negatively or positively affected profits, this would greatly affect capitalist firms decisions on whether to decrease or increase employment.

The social labor day consists of so many hours of living labor, which is divided between wages, profits and some definite amount of superfluous labor time. Leaving aside the superfluous labor time for a moment, some portion of hours of social labor falls to the workers as wages and the remaining portion to the capitalists as profits. Although Marx assumes in Capital that the worker is paid up front for her labor power, he explains this is an intentional simplification of reality — to avoid touching on the problem of the credit the worker extends to the capitalist. In practice, the worker extends her labor power on credit to the capitalist and is paid only after performance of her labor. The capitalist consumes the labor power before he pays for it and the worker produces the value of her wages plus performs some definite quantity of surplus labor before she is paid for her labor power.

A reduction of hours of labor reduces the duration of surplus labor the worker must provide before she is paid her wages. By not addressing the impact a reduction in hours of labor have on profits, Borsch-Supan neglects the fact that capitalist production is motivated by profits, not wages or prices. A reduction of hours of labor triggers an entire series of secondary efforts by the capitalists to restore profits. This effort, if it is to be successful, must result in additional hours of surplus labor.

It appears that, once all the ideological debris is removed, reducing hours of labor operates just like any other capitalist crisis produced by a fall in the rate of profit. I think this is important, because Marx explained in significant detail how a capitalist economy responds to a fall in the rate of profit. The distinction between his description of crisis in Capital, Volume 3 and the reduction of hours of labor is the source of the fall in the rate of profit: In Volume 3, the source of the crisis is overaccumulation of capital, which leads to a rising organic composition of capital. In the present case, the falling rate of profit is produced by a reduction in hours of labor, which also has the effect of increasing the organic composition of capital.

The reduction in hours of labor means a reduction of the total duration of labor for society,  which duration can be defined as the average hours of labor times the total population of employed workers. If the average hours of labor per week is given as 40 hours and the total population of workers is one million, the total labor time of society is 40 million hours of labor per week. A reduction of average weekly hours from 40 hours to 30 hours would reduce the total labor time from 40 million hours to 30 million hours.

Thirty million hours is now the maximum value the total capital can extract from the working class. Within this 30 million hours the total capital must ensure both that it produces surplus value, and that no more labor time is expended than is socially necessary for the reproduction of labor power. If we assume that previously the rate of surplus value was 100%, with 20 hours going for wages and 20 hours going to the capitalists as profit, after the reduction in hours of labor the rate has fallen to 50%, with 20 hours going for wages and 10 hours going to the capitalists as profit. All things being equal, the rate of surplus value has fallen and with it the rate of profit.

In Capital, Volume 3, chapter 15, section III, Marx describes how such a fall in the rate of profit unfolds in a capitalist economy. A lot of the subsequent argument can be easily constructed from there. The sale of labor power places a certain mass of labor power at the disposal of the capitalist class. The total national capital can then employ this mass of labor power for 40 hours per week to produce surplus value. The reduction of hours of labor only means that where before the combined capitalist class had the mass of labor power at their disposal for 40 hours per week, they must now make do with 30 hours per week.

Assuming the value of labor power is constant, the surplus value that can be squeezed from the labor power has been reduced. In my hypothetical example, the total national capital has suffered a loss of 50% of its surplus value by the reduction of hours of labor.  Each capital would see its profits fall by half on average, but, as Marx explained, this loss would by no means be evenly divided up. According to Marx, “The competitive struggle would decide what part of it would be particularly affected.” Capitals would be forced to compete among themselves to lay off the effects of this induced crisis onto other capitals.

A portion of the combined national capital will be forced to stand down and could no longer operate independently as capital. Which capital would be forced to stand down? This answer can only come from the competition itself, but a few general statements have already been made by Marx along these lines. The loss is distributed among individual capitals through a competitive struggle which distributes it, depending on special advantages or previously captured positions, so that a particular capital is left idled, another capital goes bankrupt, and a third may suffer only a relative, temporary depreciation.

In general, the largest, best advantaged, capitals would survive against smaller, less advantageously placed, capitals, (the term “better advantaged” also includes access to the state power). The smaller, less advantaged, capitals could continue to operate only by placing their capitals at the disposal of larger, better advantaged, capitals. With this, capital would become concentrated into fewer hands, since the minimum size of a capital required for profitable operation would increase. Second, regardless of which capitals actually suffered the losses, the total capital would suffer an immense devaluation that would affect various forms of capital in very different ways.

According to Marx this devaluation would strike the bloated financial sector the hardest. This sector consists of claims on prospective shares in the profits produced by the exploitation of the workers and are immediately depreciated by the reduction of the receipts on which they are calculated. Next, a portion of the existing money supply would fall out of circulation, having been rendered useless as capital. At the same time, the prices of commodities (capital in the form of commodities) suffer severe deflation, while fixed capital are depreciated to a greater or lesser degree in just the same way.

Finally, since the value of the existing capital has been calculated on a rate of surplus value of 100%, the fall of the rate to 50% has the effect of forcing a devaluation of all capital. This “paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations.” Debtors default, the credit system collapses, leading to crises, “to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.”

As can be seen, at least superficially, a reduction of hours of labor would have the same effect as a depression, except for one thing: The reduction of hours of labor is the partial withdrawal by the working class of its labor time from capital and this has the effect of forcibly raising the organic composition of capital. Through this partial withdrawal, the working class imposes a crisis on the capitalists, by denying it some portion of surplus labor. Thus, logically, this crisis has no impact on the material living standard of the working class, unless the working class withholds so much labor time that the labor day falls below that needed for production of wage goods and the portion of capital goods consumed in production of these goods.

*****

There is an additional impact connected to the collapse of the bloated financial system which also does not figure in Borsch-Supan’s discussion: The crisis would cause of a shift in the balance of international trade and could potentially render the debts of the fascist state worthless. I will turn to this next.

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