Geoff Skeet takes a long-in-the-tooth look at wages, profit and inflation, what the capitalist media tell us about it, and what might really be going on.  Geoff has been an active member of the Communist party, the Labour party, the Greens, the SSP and now Solidarity.

All my adult life, it has been preached as incontestable fact that inflation was invariably caused by increases in workers’ pay. Price rises, high dividends, monetary policy and golden handshakes to board members are completely ruled out.

What has worried me about this doctrine is my experience of getting a pay rise.

I don't deny that there might be firms where workers say to their employers "Please could I have more money?" and the boss says "OK, How much would you like?” And they all live happily ever. With most of us it doesn't happen that way.

Typically, wage increases are won by a process of industrial action and negotiation. Workers complain to their Shop Steward, who calls a meeting, and then there are branch meetings, inter-union meetings, indoor meetings in draughty halls and outdoor meetings in wet and windy car parks. Regional and National Union Officers are trotted out and say their piece - at length.

Don't think that this is enjoyable, most of it is hideously boring, people pass round respiratory diseases and most people have better things to do. However, this all has to be done. And then there are strikes. More meetings, and standing in picket lines getting wet and cold, being insulted in the press and losing money into the bargain.

Why do people do this? Greed? I've heard about greedy employees, but a poor man's greed is nothing compared with the rich man's greed, and most workers that I've met are fair-minded and have no choice but to face "economic realities".

What drives prices up? The fact that next year or so, wages might go up? Ridiculous!

Let's go back to Kublai Khan, Emperor of China in the 13th Century (I think). China was where printing was invented so the Emperor issued paper money. Much more convenient than metal coins. Great idea, but the emperor got too enthusiastic and prices started rising as too much ‘money’ chased too few goods. That was the first example of "Inflation" and more followed. In the 18th Century, Louis XV of France had a go with the same result.  Banks were started and they issued "banknotes". Take one out and look at it. Somewhere it says "The Governors and Officers of the --- Bank----- promise to pay the bearer on demand” or words to that effect. In other words, a banknote is equivalent to a cheque; it isn't formally money but "promise to pay" money, if the bank has it. When I was born (in 1928), if you took this note to the bank they'd pay you in golden sovereigns, silver shillings and bronze pennies. Not anymore.

In the thirties, the government found they were broke so they "went off the gold standard". In other words, from now on; money was not gold but some imaginary substance that the Government had a lot of and alone knew the value of.

Anytime they wanted some capitalist to do a job for them they printed some notes and handed them out. Today it’s called ‘quantative easing’ but Kublai Khan could have told them what would happen next. But who to blame?  Why not blame the greedy proletariat, always anxious to indulge their desire for caviar and champagne.

I can't understand why Tory economists claim to worship Adam Smith. It would have puzzled Dr Smith, he was an ethical man who knew merchants were apt to swindle the public and his chief point was that wealth is not created by the wisdom of bankers or the bravery of stock-exchange wizards but by the labour of human beings.

This was all very well, but as W. Thompson pointed out in the 1820's it didn't explain how it was that the people who did the work wound up with none of the money. In Dr Adam's time it wasn't as important. Most industrial employers were well-to-do artisans who worked in the shop with a few employees and if they paid themselves a bit more than they paid the lads, who could blame them?

By the 1820's, industrial employers had become factory owners employing large numbers of workers. They did not work on the shop floor, but had offices and wore smart suits.  They were becoming very rich.

There were two explanations offered, one by the likes of Thompson, the socialist economist, which was that the workers were robbed - plain and simple. The other, by economists wishing to justify capitalism, was two-fold. Firstly, while the employees worked manually, their employees worked mentally. Secondly, while the shop floor workers spent their wages on beer and skittles the employers lived frugally and saved their hard-earned cash.

In the 1840's Karl Marx looked at the problem anew. While he knew and admired Thompson, he could not accept any solution that flowed from the moral character of individuals rather than the system itself. Nor did he reckon employers for a frugal lot - tight fisted, maybe. As for the employer doing brainwork - most of them employed foremen, managers and specialists to do that for them. After all, his best friend, Fred Engels, was from a successful capitalist family and knew how it was done.

He started from the beginning. To be a capitalist you get money and buy machines, premises and raw materials. The workers come in and work for wages, the product is sold, the capitalist pays his expenses (including wages) and, with any luck, pockets a profit. If, as Smith said, wealth, or value, is labour, then why doesn't the value of the product equal that paid out in expenses?

The one thing that happens in a market is that, in the long run, the price of a product becomes equal to its cost. It's not miraculous or even difficult to understand. So how do capitalists make a profit?

One thing we must understand is that workers’ wages don't have a lot to do with the value of the work they do, even if you're on piece-work. Your employer does not buy your work - you haven't done it yet. He buys your capacity to work - call it labour power. And he buys it as near cost price as possible. What is the cost of "labour power"? It's the cost of maintaining a human being, plus an allowance for rearing the next generation of workers and a bit for placating any superfluous fancies you may have. The difference between wages - the cost of the worker, and the value produced by that worker we call "surplus value".

I remember reading a journal in the '50s dealing with industrial chemistry. The author was putting the point that improved glassware would be a good thing. During his argument he mentioned that the value produced by a bench worker in a chemical laboratory was about £5 per hour at that time. I knew that at the time such a worker was being paid about 5 shillings (old money, or 25p in modern money) in an hour. Being innocent I had thought that surplus value would be about five or ten percent. The idea that the worker would take home five percent while the capitalist would pocket ninety five percent made me think.

I know the capitalist has to pay rents, costs of tools, machines out of surplus value but still, it's in his hands to do as he likes. If he chooses to let the factory go bust and spend it all on a luxury life-style in North-east Cyprus, he is free to do so.

Also, the worker will have to buy his own food and pay rent or mortgage. We could call these things "capital" as you could not work for long without them - but bankers and bureaucrats prefer to call them "luxuries".

Geoff Skeet.