Thread by @SadKemle

First attempt at a twitter thread, so here goes nothing (bare with me here):

This is Robert C. Allen's graphical representation of "Engels' Pause"--the existence of two-phase real wage growth in the UK during he Industrial Revolution.

As you can see, real wages are stagnant from the beginning of the IR to around 1835ish, most likely 1840 if we're talking about a real guarantee that wages are going to keep going up as opposed to down. For comparison's sake, the "Communist Manifesto" was published in 1848.

What's interesting--and what I don't think Allen gets into much in his analysis--is the startling correlation with wage growth and several key moments in the history of the Labour Movement in the UK, let alone the rest of the world. Here's what they are:

1825: "Worker Collectives" are officially legalized in the UK.

1831-33: The first of the "Factory Acts" are passed, the codification into law of union demands starting with prohibitions on child labour and working hours.

1847 (when growth really does seem to be here to stay): the passing of the "Ten Hour Factory Act", one of the most major victories for the labour movement since unions themselves were legalized.

1864: First meeting of the "International Workingmen's Association"

(this was the first time union, socialist, and anarchist groups got together to hash out plans and policy and what-not; in attendance would be none other than Marx, Engels, and Collectivist Anarchist Mikhail Bakunin, which is a story in of itself)

1874-1878; the passing of the "Consolidation Act", which unified all existing Factory Laws into a formal framework and greatly expanded aspects of it--probably the most important Factory Law next to the one in 1847.

1900: unions and socialists form the Labour Party.

That's just the formal, legal stuff that unions accomplished--from the 1840's onward bargaining and actions increased rapidly across industrializing nations. In fact the number of people within a union increased 10 times between 1850 and 1874 when growth started to take off.

(Along with these reforms, it should be mentioned, is the Reform Act of 1832, which limited for the first time in, well, history, the influence of the wealthy in Parliament. Adam Smith would've loved that since he specifically notes how law was used to keep labour wages down)

And, so, you have several institutional examples of how, exactly, worker's bargaining power was able to increase such that wages started growing, instead of faltering in order to pad capital accumulation: labour unions fought and won the right to participate in industrial growth.

I would argue this is directly causal--more so than any other explanation by far--but I'll get into that in a sec. What's interesting, first, is how even though wages are growing, the gap *between* productivity and wages is *also* growing as time goes on (here's the graph again).

Even before wages tail off after the 1890's, the productivity/wage gap was twice as large in 1900 as it was in, say, 1820. Real wages, though. *did* expand quite rapidly--however as we can see, this is after the Industrial Revolution petered itself out.

(I can't tell exactly, but I think the massive jump corresponds to around the end of World War I, naturally enough)

This massive explosion in real wages is happening simultaneously with this: the creation of the welfare state. And the wage-guarantees that come with it are the only real explanations for consistent growth, the two war-based shocks on the labour market are temporary, after all.

Indeed, union membership--in *addition* to a basic standard of living guarantee from Beveridge and Attlee--will never reach a higher *absolute* total than in this period of massive, sustained growth.

And I think the correlation grows even stronger when we look at round two of "Engels' Pause" in the modern world: low union-density countries are seeing wages and productivity separate again, while high-density or, for France, expansive collective bargaining countries have not.

So what's all this building to? What's the *causal* relationship, and what does that mean?

Well, for starters, I think it means Marx was right about one thing vis-a-vis wages and trends. Overzealous though he was in predicting capitalism's demise, I think he got wages right.

There's this idea in economics called the "Natural Rate of Unemployment", which basically states that, depending on the bargaining power for wages in a country--and considering how owners can only stomach so much loss of profit--there comes a point where firms won't hire anyone--

--no matter how healthy the economy seems to be. This, right here, is perhaps the clearest causal link between labor bargaining power and the wage level of a country. While multiple other studies directly link unions and high wages, this is a macro-level example in favor of labor

Milton Friedman--who was vocal that a firm existed only to generate a profit for shareholders--used this as a hammer to the ankles of organized labour.

I, on the other hand, think this perfectly illustrates the conflict between profits and wages that Smith and Marx and even Post-Keynesians describe. And so, I think that a historical perspective--with the NARU in mind--vindicates Marx on one of his statements about wages:

that is to say, that owners and firms will only pay *enough*, and that consistent and systemic increases can only come about through direct action on the part of the labourers themselves.

Marx pegged them at the level of survival, but I think Keynes made it clear that a firm or owner will let wages grow such that consumer demand increases. Not enough to close the material gap between classes *or* effectively maintain freedom within a monied system like capitalism-

--but enough, at least to support growth. Growth that doesn't cut into their own market and political power, but growth enough that the system doesn't collapse. :

It's a lot like why Bismarck created social security in the first place, or a progressive tax system paying for a welfare state: it's "anti-revolution insurance", a concession to socialist critics or other forms of popular organization to keep them happy without changing too much

(Marx missed that bit in his analysis, of course)

Beyond trying to vindicate one aspect of Marx's analysis (which I don't hold to be the same thing as vindicating *Marxism*, at least not of the orthodox, highly flawed variety), I want to say this:

--people who claim capitalism raised our living standards are wrong. The only essentially capitalistic element at play here was capital accumulation, and Allen's paper made it clear that such accumulation came at the expense of labour and land in the pre-1840's era.

What raised our living standards, in my opinion--what ensured that technological progress and economic advancement worked for *all*--was social democracy, not capitalism.

The expansion of the state's purview away from the rich, the protection of workers, and the increasing power of unions spread the proceeds of innovation and advancement (which in of itself wasn't a part of capitalism either, but that's a different argument).

Marx was dead wrong on his predictions of capitalism's demise and, I think, he misjudged our innate drive for fairness creating a compromise that would starve off socialism but benefit us all in its name. Sort of: he came around to the idea of SD being a viable path to socialism.

All the same, the reason wages and living standards improved during the IR was the application of socialist critiques to a system of reform, birthing social democracy and, eventually prosperity.

If SD was expanded like SD's wanted--if its radical critiques and core continued to improve on areas of injustice and degradation--we WOULD get socialism, as that was, like I said, the goal of social democracy. It stagnated hard thanks in large part to the USSR, but...

Anyways, those who say capitalism helped us are grossly overstating its case. Capitalism was beaten to a pulp trying to get it to work for us, to the point where we need to legitimately ask what constitutes capitalism and what parts of it are essential for progress.

/thread, finally.

Thanks for reading.

MAJOR CORRECTION: the notion that wages tend to go towards mere survival in the long run--the "Iron Law of Wages"--is actually Malthus, Ricardo, and Lassalle. Marx actually distinctly criticized this view of wages.

So my bad--like LT of V, I'm critiquing the wrong economist.