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According to the Wikipedia page on Marxist economics, one criticism Marx had of capitalism is that the capitalist model of employment creates a difference between the value the workers create and the value they receive in exchange for their labor - with the employers pocketing this difference for themselves - therefore effectively robbing the laborer of their true value.

However the suggestion that this dynamic is wrong strikes me as odd, because to me it just seems necessary. Marxists want employers to pay their laborers all of the value they produce. But if the employer does that, he would have no way of generating profit, because the value he is producing is equal to the value he is giving to his laborers. But if he is not profiting he cannot cover his other expenses and he will quickly realize his whole enterprise is not sustainable. Then he will be out of business - and the laborers will be unemployed.

In other words, it seems to me that employers’ taking surplus value is a necessary condition for profit, which is a necessary condition for sustainable business. Therefore there is nothing wrong with taking surplus value. How would a Marxist respond to this?

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    Presumably the labor of the person who had the idea for the company and did the intense work to get it up and running, and took the risk of failure, is also worth something. How does Marx distinguish the value of this person's labor from the value of the labor of those who make the pieces, now that they have been given all of that infrastructure? What possible objective measure could there be other than "what people are willing to pay for it"? Jan 20, 2022 at 18:58
  • @DavidGudeman “What people are willing to pay” is a measure, but hardly an objective measure.
    – H Huang
    Jan 20, 2022 at 18:59
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    @HHuang Is there an objective way to measure value, other than what people are willing to pay? A gallon of water in hand is much more valuable in the middle of the Sahara than sitting by the side of a pure mountain stream. The labor of plumber willing to swap out a pipe is valuable only if the pipe is broken. Even a unit of currency can't be a perfectly objective measure, since it can change in value over time.
    – Jedediah
    Jan 20, 2022 at 19:20
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    @HHuang, people, subjectively decide who to vote for, yet a count of the votes is an objective measure. Similarly, people subjectively decide what to pay for a service, but the fact of what they pay is an objective measure. Value is an inherently subjective idea, but that doesn't prevent one from measuring it objectively. Jan 20, 2022 at 21:59
  • There are deep divisions between people who call themselves "Marxists" about what Marxism exactly is, but in general there's agreement on the need to overthrow the entire capitalist system and replace it with something else. The object of criticism is not individual capitalists, but the capitalist system as a whole. The issue isn't that individual employers are bad people for exploiting workers (Marx was generally hostile to "moral" criticisms of capitalism), but that capitalism has the exploitation and alienation of workers at its heart. Marx was interested in the working class primarily be
    – evilsoup
    Jan 20, 2022 at 22:00

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I think there’s an issue with your understanding of profit here. Profit is revenue less expenses: all expenses. A business doesn’t need to make profit to pay its expenses, since a business that is breaking-even with zero profit is by definition earning just enough to pay all of its expenses (which includes labor compensation). So the premise of your question is incorrect.

So if a business is making profit, that means that after employer pays their workers, pays for machine maintenance, advertising and all that, they still have money left over that they pocket themselves. Now, the reason this extra money goes to them is because they own the machines the workers use. Maybe the employer does work themself in the company, but even if they didn’t, they would get unearned, passive income from the company just because they own its capital, so obviously the profit is not just the compensation for their work. Because Marxism believes that labor does and should be the only generator of value, that means the employer is getting something for nothing, profit for none of their own labor. Therefore, the profit of the employer must be taken from the rightful compensation of the workers, which is exploitative and immoral.

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    But profit is also (more or less) a measure of whether producing a thing is actually creating value. If it costs me $8 to produce a loaf of bread, and I can't sell the loaf for more than $5, I'm effectively destroying value by baking the loaf, and the equipment and time and materials would apparently be better off devoted to something else. If a business's profit is $0, it doesn't appear to create value - and aiming your profit/loss with that precision is also difficult, anyway.
    – Jedediah
    Jan 20, 2022 at 19:27
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    @Jedediah Zero profit doesn’t mean no value, especially since you still get adequate compensation for your labor. In fact, in a theoretical perfect economy (with all the assumptions and whatnot), profits for all businesses trend to zero in the long term.
    – H Huang
    Jan 20, 2022 at 21:00
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    If I have a pile of grain, unground, and it's "worth" $1, and then I grind it and the result is $1.50 worth of flour, I've added value. Except, if it cost $0.75 to grind the flour, I haven't actually increased value, because I lost $0.25. In fact, if the processing cost $0.50 and the result is $1.50 of flour, I haven't had a net increase of value. Profit is a measure (admittedly imperfect, as all economic measures are) of whether value was added. Revenue less expenses indicates the difference between the cost to produce the product and what someone is willing to pay for it.
    – Jedediah
    Jan 20, 2022 at 21:09
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    No, not at all. If unground grain is worth a dollar and ground grain $1.50, then you added 50 cents of value, regardless of the cost of processing. In any case, this is irrelevant because Marxism doesn’t even define value in this way and subjective value theory is only one of many theories of value.
    – H Huang
    Jan 20, 2022 at 21:13
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    Saying "not at all" doesn't make it not true. To be (even more) concrete, if it cost me $0.75 of gas to run the generator to run the grinder to grind the wheat, and the result is $1.50 of flour from $1.00 of grain, the total amount of value has decreased. The greater value (in a large, complex, reasonably efficient market) of the gas suggests there are more useful things to do with the gas than use a generator to power a wheat grinder.
    – Jedediah
    Jan 20, 2022 at 21:24
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The transfer of surplus value between capitalist and worker needs to be set in the context of Marx's wider theory of captalist/ worker relations if we're to understand why Marx objects to it. As it stands, in your outline, such transfer can readily seem unobjectionable. John E. Roemer (himself sympathetic to Marx) shows how this can be done:

Why should the transfer of surplus labor between worker and capitalist be considered exploitative? The neoclassical economist, and bourgeois thinker more generally, will object that the worker who owns no means of production himself is trading his labor power for access to the means of production owned by another. Both gain from the trade. Or, a different argument, the worker trades his labor power for access to the entrepreneurial skill of the capitalist, or the risk-loving nature of the capitalist which enables him to set up a business. In any case, the trade of labor power for access to capital or entrepreneurial skill is a quid pro quo, and should therefore not be viewed as exploitative; in the case of the risk-loving capitalist and risk-averse worker, the 'surplus' labor is an insurance premium the worker pays to protect himself against having to take those business risks himself. (J.E. Roemer, 'Property Relations vs. Surplus Value in Marxian Exploitation', Philosophy & Public Affairs , Autumn, 1982, Vol. 11, No. 4 (Autumn, 1982), pp.281-313: 282.)

It is in the context of property relations - patterns of ownership - that Marx's criticism of the tranfer of surplus value becomes exploitative on his account. Roemer again:

...one might say that the ownership of capital by the capitalist is unjust in the first place, and hence the worker should not have to give up anything to have access to it. (Roemer: 282.)

To this can be added G.A. Cohen's point that 'the laborer is forced, by his propertylessness, to work for the capitalist.' (G.A.Cohen, 'The Labor Theory of Value and the Concept of Exploitation', Philosophy & Public Affairs , Summer, 1979, Vol. 8, No. 4 (Summer, 1979), pp.338-360: 343.) If the transfer of surplus value were voluntary, it might not be exploitative but when the laborer has no choice then the capitalist is taking advantage of the laborer in a manner that can properly called exploitative.

I am not endorsing Marx's account, or the version I have given of it here, but aim only to explain the background from which, as I see it, Marx's claim emerges that the transfer of surplus value is exploitative.

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This question misunderstands the nature of surplus profit. In market economics, there is a minimum price that a producer can accept for their last item they produce, to remain in business. That number is different between the first and the last item. The integral of the sale price minus this price, over the full production quantity, represents a surplus profit above what is needed to say in business. There is a similar surplus in each worker's pay -- how much they would be willing to accept to work their last hour, or any hour, vs what they actually are paid. This surplus pay represents a surplus over minimal pay to barely choose to stay employed.

These two dollar values combine to represent the intrinsic "surplus" of a business. The relative negotiating power of the workers, vs. the owners, determines how much of this surplus is surplus pay, vs surplus profit. At the time Marx was writing, in the late 1800s, there was a massive oversupply of industrial workers, and this gave business owners such a massive negotiating advantage that basically all of this surplus ended up as surplus profit. Marx assumed this would always be the case, based on Malthus predictions of unending population growth.

In subsequent decades, the vast oversupply of industrial workers did not continue, more factories were built much faster than workers reproduced, and at least in Europe and N America, worker wages grew dramatically. Workers were able to capture surplus wages for themselves, decreasing the amount of surplus profit.

Sweat shops in the 3rd world today are basically repeating the dynamics of that robber baron era. Globalization is behind the drop in effective wages for labor in N America and Europe. We have not returned to "all surplus goes to ownership" of the late 1800s, but globally businesses capture a larger fraction of this excess as surplus profits today, and workers capture a smaller fraction as surplus wages, than they did 40 years ago.

A Marxist perspective would postulate that the sweatshops of the 1800s, and of the 3rd world today, represent the typical operation of capitalism, while the well paid period for workers of N American and Europe from the mid 20th Century to today, is a transitory exception. And that sweatshops, dirt wages, and massive excess profits for a small owner class, are a morally intolerable situation, which anyone with a functioning conscience should want corrected by governmental intervention.

In general, free market advocates base their advocacy on the empirical observation of Adam Smith, that markets generally lead to a good outcome for society as a whole, via the "invisible hand".

Marxism looked a the sweatshops, dead and poisoned workers, dirt wages, absurdly rich Robber Baron class, and use of the army to benefit the Robber Barons, of the late 1800s, and say that NO, free markets do NOT produce a good outcome for society.

The dispute between Marxists and free marketers' is over whether the sweatshops, or the last 70 years in N America and Europe, is the normal societal outcome from markets.

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    I note an asymmetry in your definitions of surplus. For workers, the surplus is based on the minimum they are willing to work for, while for the owner, the surplus is the minimum they need to stay in business. A symmetrical definition would say the surplus for the owner is the minimum he needs to keep him from choosing to drop the business, even if he could stay in business if he chose, maybe because he could make more money elsewhere. Jan 20, 2022 at 22:05
  • @DavidGudeman -- I think there is an asymmetry in marxist thinking, which was geared around factory work, and included a significant infrastructure investment by the capitalists. Capitalists that have that sort of infrastructure investment, basically have a "continue or stop" choice, while workers are intrinsically more mobile. The significant increase in profits from relocating to 3rd world sweatshops has masked that difference in recent decades, making businesses appear more mobile than they are. The relocation has a very high cost. Low infrastructure businesses DO have flexibility.
    – Dcleve
    Jan 20, 2022 at 22:10
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I think it's easier to understand Marx's argument if we take a simplified case, where there are no imputations of bad intention, just economic forces. So consider a hard-case scenario in which two companies, Alpha and Beta, are competing to make widgets. The following conditions apply:

  • Alpha and Beta are roughly equivalent in size and economic resources
  • Each company's widgets are also roughly comparable
  • Each company consists of an owner, a few managers, some industrial assets, and a good-sized labor workforce.

Now, because these companies are more-or-less equal, and demand for these particular widgets is limited, competition is fierce. The owners of both companies take the following steps to lower the cost of their widgets:

  • They reduce costs of resources, raw materials, transportation, power, and other material essentials as much as possible
  • They reduce their own wages, the wages of their managers, and the wages of their employees to the minimum necessary to meet everyone's respective financial needs: no one is making a profit, no one is buying luxuries, but everyone has food on the table and a roof over their heads.

But since both companies did this, each lowered the cost of their widgets the same amount, so neither gets the upper hand. The competition remains fierce. What to do now..? The owners cannot lower their materials costs any farther and still produce their good; materials have a fixed lower cost limit. The owners might lower their own wage and put it back into the company, but that's only the wage of one person, so not much help. They cannot lower the wages of their managers, because managers are skilled professionals who will leave if they don't get their pay rate. The only effective course of action is to lower the wages of low-skill laborers. Low-skill laborers are easy to replace — there are always young, single people with low economic needs willing to take on such jobs — and they are easy to train on the job if one has skilled managers. Plus, there are a lot of low-skill laborers working the machines, so lowering their wages even a little can produce comparatively large savings that translate to lower widget prices. One can also increase laborers' hours, meaning that there are fewer people to train, fewer to pay, fewer to monitor, all of which can translate into lower costs to the company.

But here's the Marxist question: what is the natural lower limit on laborers' wages? It appears as though there isn't one. There will always be someone sufficiently desperate to accept a given wage, no matter how low, because any pay is better than no pay at all. People need to eat, people need places to live, and so even the most unskilled among us are driven to work profitably at something.

So, labor is the one economic cost that can be constantly and consistently reduced to make a company more competitive. Even if owners are moral individuals with the best intentions and concern for the welfare of their employees, the intractable dynamics of this fierce competition would work to ensure that the wages of laborers always decrease (and their hours will increase, and amenities and safeties in their working environment will disappear) at least until employee indignation starts to outweigh employee desperation.

This is an idealized scenario, obviously: simultaneously an economic worst-case scenario and a moral best-case scenario. In the real world, companies are interested in profit, not mere competitive survival; they want to accumulate assets and capital so that they can expand and diversify. But the same logic applies: the one ever-reducible cost of production is labor cost. And since moral idealism is all-too-often not a successful business trait, many corporations will do what they can to reduce labor costs in order to pad their own bottom line. Eventually we end up at the maximally exploitive 'Uber' model, in which most costs of production are bourn by laborers, and the company siphons off all profits except those that are minimally required to keep drivers on the road.

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    Except there is a floor to wages. If the unskilled laborers would be better remunerated by picking berries by the side of the road (or working at the wudget factor, instead of the widget factory), they will not take a sufficiently under-paid job. It's only if you artificially cut off the model at the edge of the two companies, and yet imagine an unlimited worker pool, that your assertion makes sense.
    – Jedediah
    Jan 21, 2022 at 14:41
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    Except there's the other floor (getting out of widgets and into something else that pays better, like "wudgets"). Workers are a finite resource too, and the market is not lined up perfectly with a single industry. But even HGS is enough to give the lie to your assertion that there is no floor to unskilled workers' pay.
    – Jedediah
    Jan 21, 2022 at 16:06
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    I would say rather that you're the one using a rhetorical ploy. Again you ignore the alternative of a worker moving to a different industry (more likely, in general). Of course, gathering berries is reductio ad absurdam (of your argument) - there literally MUST be a floor below which workers will not (cannot) go in the wage they'll accept. But you have to muddy the water with slavery or Ayn Rand, anything but admit you said something incorrect, because it's your central point.
    – Jedediah
    Jan 21, 2022 at 19:19
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    "Sigh..." If you pretend arguments you cannot effectively answer are "rhetoric", you always win.
    – Jedediah
    Jan 21, 2022 at 22:43
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    I didn't ask for a discussion. I pointed out an inconsistency in a stack exchange answer. And you squirmed and accused me of rhetorical ploys, etc. But I figure I've made my point as well as it can be made by now.
    – Jedediah
    Jan 22, 2022 at 0:26

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