 So I will be applying the Marxian theory of rent to wage determination in this talk. We begin by looking at what Marx says about simple and complex labor. This is sometimes referred to as the reduction problem. So he writes, more complex labor counts only as intensified or rather multiplied simple labor so that a smaller quantity of complex labor is considered equal to a larger quantity of simple labor. A commodity may be the product of the most complicated labor but through its value it is posited as equal to the product of simple labor. Hence it represents only a specific quantity of simple labor. Now there's a controversy about how to understand Marx's presentation of complex labor. So first I would like to just do some terminological clarification of a fairly basic kind that will be maybe known to those people who know a thing or two about Marxist economics. The first is the distinction between labor and labor power. So labor is the actual work done by labor. The activity that happens during the labor process and labor power is the worker's ability to work. Marx believes it is labor power that the capitalist purchases from the laborer and this distinction between labor and labor power he sees as one of his major contributions to economics and as solving a number of conundrums in the theories of David Ricardo. So the next distinction is that between value and price more specifically for this presentation the value of labor power and the price of labor power. So exploring this distinction between value and price socially necessary abstract labor time is the substance of value and price is the necessary form of appearance of value. Now I think both of these statements have a lot to unpack in them that I won't do today. The important thing is to note that Marx sees socially necessary abstract labor time as having a mediated relationship with price. We don't expect that market prices will directly correlate with the labor times embodied in those commodities but we expect to be able to account for the price of commodities using a theory that starts with socially necessary abstract labor time. A consequence of the definition of value as socially necessary abstract labor time is that labor in Engels words can therefore have no value. Labor is the substance and therefore also the measure of value. So it doesn't make any sense to talk about the value of labor. And similarly at the other end, money has no price in the same way that labor can have no value because labor is value, money can have no price because price is just a certain quantity of money. So now turning back to simple and complex labor individual labor time can diverge from socially necessary labor time. In the first few pages of capital, Marx gives the example of the power loom replacing the hand loom. So the first user of the power loom produced two hours of value in one hour. In concrete terms, the first power loom weaver was selling cloth at the price that was set by the productive conditions of hand looms. The initial users of the power loom were thus able to make surplus profits because their costs were much lower but their selling price was the same as the hand loom weavers. But the last users of the hand loom produced only one half hour of value in one hour and the logic is exactly the mirror of what I just said. So in this case, the socially necessary general productive techniques dictated that a certain amount of cloth could be made in one hour and the hand loom weavers could only achieve half of that. Despite having extraordinarily high costs, they could only sell their product at the same price that was now being determined by the power loom. So it is possible that by complex labor, Marx meant individual labor of above average productivity. That's one school of thought out there. And the solution of Caligaris and Starosta is that complex labor produces the same value as simple labor but has a lower rate of exploitation. And the reason why it has a lower rate of expectation is because complex labor is paid more. So I think that both of these solutions are logically okay and the rest of my presentation doesn't hang on this difference. In either case, what I want to emphasize is that wage is something different. Wage is the price of labor power. It is not the value of labor power. Indeed, as a footnote on the passage that I began this presentation with, Marx says, at this stage of presentation, the category of wages does not exist at all. So to some extent, this reduction problem doesn't need to impinge on our explanation of wages. So how do we determine the value of labor power? So the iron law of wages is the theory that Marx inherited from classical political economy, that the wages of workers will seldom exceed the bare requirements for them to stay alive. Marx and John Stuart Mill added that there is a moral component to the iron law of wages, namely that the minimum standard is not strictly speaking a biological minimum, but it's a social cultural minimum. Now I think the way that one can understand this is that the physical needs of workers to maintain themselves day to day, biologically sets the lower limit on wages and profitability sets the upper limits. Under certain circumstances, the capitalist might agree to pay workers more, but at the point that the capitalist business becomes unbiable because of zero or negative profitability, then that is not going to be agreed to. So I think these are the limits. We need to keep the workers alive, but we also have to have a positive profit. And within these two limits, the actual wage of workers is decided by class struggle in Marx's famous phrase between equal rights force decides. So in a period of strong unionization of an active labor movement, wages will be higher and in a period of weak unions, when capitalists are the stronger force in the class struggle, then wages will be lower. Basically, as a definitional point, the value of labor power seen from the perspective of the capitalist making the purchases necessary for another period of production is called variable capital. So the capitalist buys means of production and labor power and then brings those together in the production process. The value of labor power is not set like other commodities. So this is an important point in terms of how we understand the reduction problem because a number of Marxist scholars like Hilferding, Bauer, Meek and Shake understand that the value of labor power is set by the, if you like, the cost price of labor power. Within this perspective, education would be seen as a capital investment. So in this perspective that I'm disagreeing with, just like when you buy a machine, that machine transfers its value bit by bit across its life through depreciation into the commodities that it produces. One could understand education as, I make a big upfront investment in my education and then that leads to a higher wage. So the value of the education is being transferred to the value of products I create bit by bit. This theory, however, blurs the distinction between constant and variable capital and Marx makes it very clear that he thinks that living labor creates value through the expenditure of labor time. So there's no obvious mechanism whereby labor power would also have this sort of constant capital component to it. Now, there are reasons why from the perspective of an individual laborer things have the appearance of, to use a more contemporary phrase, human capital. This idea that you invest in your education and then you get higher income is not wrong. But it's a surface appearance. So now I turn to the core of the presentation about applying rent theory to wage determination. So first of all, just a little bit of a reminder about Marxian rent theory. So we have three kinds of rent. First kind is monopoly rent. A landlord owns a vineyard that makes a qualitatively unique wine. And then since the only place you can get that wine is from his vineyard, it means that he can charge as much as customers are willing to pay regardless of supply. It increases the individual commodity price. Then there's differential rent. So differential rent is when a landlord's land is unusually productive. So he can set the rent to soak up what would be surplus profits of the tenant farmer. So just to paraphrase that. Here we're imagining corn is what the economists always call it, we Americans call it wheat. So there's a certain price per bushel of wheat and that price is set in the marketplace. Now this land is particularly productive. So with fewer costs, less labor time, less fertilizer for instance, you can produce the same amount of corn. Well, that would mean if there were no rent that the tenant farmer would get surplus profits because the difference in his lower costs because of the fertility of the land would become extra profits. But if a landlord ever noticed this happening he would raise the rent on his land to soak up that difference. So that's differential rent and it does not change commodity price. Now that's the whole idea is that it's that the commodity price is set external to the conditions of that particular farm. And then the third type of rent is absolute rent where a landlord must be somehow compensated even if he has terrible land if he's going to make his land accessible to cultivation he's going to require some kind of compensation for that. And this increases the sector-wide commodity price. So for instance, corn, the price of corn has to be high enough to allow the landlord to make some deduction no matter what the conditions of productivity of his land are. To review the differences in terms of their effect on price monopoly rent increases the price of the specific the individual commodity that's monopolized. Then differential rent doesn't change the price of the commodity at all and absolute rent adds a certain amount to the price of all the commodities in a whole sector. Okay, so now I'm just going to apply those three concepts directly to wages. First monopoly wage. Mark doesn't go out and say this anywhere but it's my understanding that monopolies are always legally created in the case of our landlord with the particularly nice vineyard because his title to use that land is illegal creation. His ownership of that land as opposed to some other piece of land is illegal artifice. In the case of monopoly wages, I think we need to look for legal protections to decrease competition in certain sectors of the economies in terms of their labor force. So medieval guilds, things like the American Medical Association not allowing the number of doctors to go over a certain number. So whenever there's a cartelization on the part of the organization of the workforce that creates a sort of monopoly wage. Yeah, it's the exact inverse of a monopoly cartelization on the side of the capitalist. And this applies at whatever level that cartel applies in. So I think that's monopoly wages. So then we turn to differential wage. So I think that personal talents is one clear example of differential wage. So maybe you can get work done faster than the guys sitting at the desk next to you. So if you can just do more in less time, you're paid the same amount. The price is set externally to you. So that is an example of this differential wage. And I think that things like athletes, musicians are a case where we're used to thinking about the personal abilities of one individual attracts a surprisingly large amount of the remuneration that's available in that sector to that person. And then I also think this is where we should understand education as coming in. So education contributes to a differential wage when that education is linked to sector specific short-term labor shortages. And now this is the point that I really want to talk through carefully. So suppose that there is a new technique that is associated with a new skill. In phase one, a very small number of workers happen to have the skill, perhaps originally as hobbyists, right? This is the first moment when this new productive technique is introduced. No one has yet had the opportunity to train on using that technique, except maybe those people who developed it in the first place. So this means that those people are able to command a share of the surplus profits of the firms that use that productive technique. When a firm introduces a productive technique that uses less labor than the amount of labor that is usually used for the production of that product. For instance, a power loom instead of a hand loom, that difference between the socially necessary abstract labor time and the firm specific labor time of an individual worker, that's captured as surplus profits, right? Now it might be still efficient for the firm to allocate some of those increased gains to the skilled workers who run the new machine. As long as they still come out ahead, they're fine, right? Like maybe the productive technique is has twice the productivity. So they've just doubled their profits and then maybe they keep 75% of that and as profits, keep it as profits, but then use 25% of it to pay their workers better, right? That can work in the short term. Now in phase two, workers train in this skill even at great expense, since they think it will lead them to command a higher wage. They see the workers from phase one getting those high wages. Now as the number of workers with the skill increases, their power in the class struggle between labor and capital dwindles and their piece of the surplus profit pie shrinks because capital finds it easier to locate these skilled workers. They are competing against each other. So the amount of the surplus profit that the firm feels like it makes sense to give to the workers is smaller. And then at the same time, the increasing number of firms using the technique also means that the surplus profits decrease. So as the new technique becomes more prevalent, the advantage of having it goes down. Now in phase three, the skill in question becomes increasingly part of general education and thus is not a specialized skill. At this point, it's not skilled labor anymore. It's just normal labor. In a fourth phase, the skill is entirely automated. When the skill is automated, then those who train in the skill are, if anything, disadvantaged in the workplace. And at this point, a new cycle begins since building and repairing the automatic version of whatever this skill is, engenders a new type of skilled labor. In principle, then we have this cycle yet. More and more skills are taken over by the machines, but then at the same time, the skill level of humanity in principle increases. So now just a side note, it's my intuition that surplus wages typically last longer than surplus profits. If an early entrant with a particular productive technique, if the key to that productive technique is a special machine, all it takes for a competitor to get in on the game is to buy that machine. That's easy to do as long as they have the money for it. They can even take it alone if they don't have the money for it. But maybe the reason why the early entrant has its market advantage is because of some specialized skill that its workforce has. Well, to train up people with that same skill or to wait until people get that training themselves, it's just gonna take a lot longer than just buying a machine. For that reason, I think that this process whereby through competition surplus profits are eroded is slower in the case of surplus wages than it is for surplus profits. Another consideration is that those with the skill might not be eager to teach it widely because they know that that skill is the source of their surplus wages. The third application of rent theory to wage determination, absolute wage. Here we're looking for a sector specific high wage that is not tied to surplus profits. Instead, the logic of it has to be you need to pay people more in order to work in this sector. The thing that I thought of that might fit the bill is wages of superintendents where you want your managers to be well-paid more or less so their class solidarity is with the proprietors and not with the laborers. And so you have to pay them a lot in order to get that class allegiance. And this affects the whole sector. It also occurs to me that maybe particularly dirty or dangerous things could be analyzed in this way. Although I'm not convinced that's the right way to analyze them. Okay, so that was my application of rent theory to wage determination. So now I'll just offer a conclusion that may not seem like much of a summing up but in some ways it was the starting point for me to think about this whole question that those who earn over $55,000 after tax in the US in the year 2021 were benefiting from exploitation. So that's the number that you get by looking at the GDP and discounting for investment and then making it GDP per capita. That is the amount of added value that each worker puts in the economy. So if you like, that's the monetary expression of labor time for a year. So any employee who's paid over that is somehow benefiting from the unpaid labor of other employees in the economy. And I just want to emphasize that this happens without these workers owning means of production. So they're not exploiting other workers because those workers don't work for them but they are benefiting from the social institution of exploitation despite themselves not owning the means of production. So if you can divert the surplus labor of other employees towards yourself through some sort of ownership claim, in this case the claim of ownership is the ownership of your particular kind of labor power that seems analogous to me to other ownership claims diverting surplus value to them in the theory of rent. And so that's why I started down this path is to think about why is it that some people are paid more than the value they create in the economy?