“Along with the constant decrease in the number of capitalist magnates, who usurp and monopolize all the advantages of this process of transformation, the mass of misery, oppression, slavery, degradation and exploitation grows; but with this there also grows the revolt of the working class, a class constantly increasing in numbers, and trained, united and organized by the very mechanism of the capitalist process of production. The monopoly of capital becomes a fetter upon the mode of production which has flourished alongside and under it. The centralization of the means of production and the socialization of labour reach a point at which they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.”

The idea that capitalism is an exploitative system is still very much alive today. Reflecting on the legacy of Marx after 200 years since his birth, in an article in the New York Times, the writer states “…[The] educated liberal opinion is today more or less unanimous in its agreement that Marx’s basic thesis — that capitalism is driven by a deeply divisive class struggle in which the ruling-class minority appropriates the surplus labor of the working-class majority as profit — is correct”. Today it is not only radical politicians, political parties and trade unions who trace their opposition and criticism of capitalism in its exploitative nature, but the “educated liberal” as well share the same sentiments or as Marx would put it – the same ideology.

How exploitation is a structural feature of capitalism

Marx based his central criticism of capitalism;  its exploitation of workers which leads to class conflict, on his doctrine that value is created by labour.

His labour theory of value holds that the value of objects or commodities in the market is determined by the labour power that goes into producing it. The question Marx was attempting to answer was that of value – how do different items come to have the same exchange value? Suppose you have a pair of shoes which you can exchange for 3 loaves of bread. What is it about a pair of shoes that makes it worth or equal to 3 loaves of bread? Marx answered what they both have in common is that a quantity of labour went into producing them. Therefore the source of value is the quantity of labour that produced them. If it takes 8 hours to make a pair of shoes then it is equal in value to 3 loaves which takes 8 hours to make.

If labour is the source of value and if in a capitalistic system wages are always below the value of the item – then the profit or surplus value which accrues to the capitalist actually belongs to the worker. The capitalist is actually then expropriating the surplus value (market value minus wages) that rightfully belongs to the worker. It is important to note that for Marx; it was not poor working conditions, or long working hours or the unfairness and greed of capitalists that made capitalism exploitative. Rather exploitation was a structural and technical feature inherent in capitalism. Even if your boss doubled your wages and allowed you the most flexible working hours combined with exceptional benefits – you are still being exploited because you are under the structure of capitalism and it is only a “false consciousness” that keeps you from recognizing it. The labour supplied by workers is responsible for producing goods and therefore the total value of the goods belongs to the workers. What guarantees the exploitative feature of capitalism is that workers only have their labour to sell in the free market because they do not own the means of production – it is the capitalists who own the means of production. Marx thought that capitalism was unsustainable in the long term because it was precisely the mode of production in capitalism that would lead to a better organized and “woke” working class who wouldrealize the true structure of capitalism and rebel against it. The post- capitalistic age would then usher first a period of socialism (run by the dictatorship of the proletariat) and eventually once humans had become more noble, and selfless,the age of communism would finally emerge where there would be no classes, no state. Marx had a teleological view of history and thought this process was inevitable and unavoidable.

Wages are only possible under capitalism

The most fundamental error with Marx’s analysis begins at a conceptual level -a point brought to my attention in an excellent article (Classical Economics vs. The Exploitation Theory). Marx fails to grasp that wages are only possible under the division of labour in a capitalist economy. In the absence of division of labour in a market economy wages do not exist.

For Marx if you look at a pre-capitalistic society without division of labour and capitalists – individuals receive the full value of their labour. Everyone works and produces their own final consumer products and can then exchange them for other products. The crucial thing is that the full value of what they produced belongs to them. When capitalism arises it now expropriates what the labourers produced and compensates them a small portion of the full value and capitalists keep the surplus value, so thinks Marx.

The grave error Marx makes is that he assumes that the income individuals receive in this pre-capitalistic society is wages when it is actually profit. The income you receive when selling a product of your own labour is not wages but profit – you are selling a final product and not your labour.

There are a number of differences between wages and profit. Firstly, when you sell a product it is possible for you to make a profit or a loss. When earning wages – you complete your work and earn your wage; there is no profit or loss possible. Your wages is determined by the completion of the labour you provide and not by whether the product you have participated in making is sold or not. Think about how it is possible for a worker to earn their wage while simultaneously the business makes a loss. Secondly, income from selling a product is always received on completion of the sale transaction. Income from wages is received on completion of work provided for some agreed upon time – there need to be a single product sold before a wage is earned.

If you look at a pre-capitalistic society you find all the elements of profit earners and not wage earners. In a pre-capitalistic society you must make your final product which you then must go and sell in order to receive an income. If no one purchases it you can make a loss; you can only receive an income on completion of a sale transaction. Therefore in a society without division of labour, where each person makes their own final products for exchange or consumption – there are only profit or loss takers and no wage takers. What this ironically leads to is that in a pre-capitalistic society there are no wage earners but only capitalists or “protocapitalist” (people who use their own natural resources such as land and livestock in combination with their own labour to make products they can sell or exchange with and earn a profit from).

This leads to a fatal blow for Marxist exploitation – There is no exploitation of wage earners (workers) by capitalists possible because wages only come into existence with capitalism and division of labour. Most importantly wages are income received for providing a labour service and not for the selling of a final product and therefore the worker cannot be entitled to the full value of the final product they participate in producing.

Wages therefore become another factor of production, another commodity with a market, whose value is determined by the demand and supply of that particular labour skill in connection with whatever particular goods and services it produces. In a “precapitalistic” society there is no labour market and no wage earners because everyone employs their own labour for the production of their final products.

There are further problems with Marx’s claim that labour is the source of value that need clarification.

Entrepreneurs and capitalists perform no labour?

A highly implausible and untenable claim with Marx’s idea of capitalists exploiting workers is that he assumes that capitalists contribute nothing other than capital and perform no labour of any kind. Marx has a narrow view of what labour is if it excludes capitalists and entrepreneurs. The capitalist who has an idea and decides to organize the needed capital, resources and labour in the best possible way to bring about that idea to life performs no work according to Marx. Think of James Dyson who invented the bagless vacuum cleaner after testing 5000 prototypes, Max would argue that it is the workers in the factory responsible for the production of the bagless vacuum cleaners and Dyson is simply a capitalist exploiting their labour. And yet it is the capitalist or entrepreneur taking risks and trying different methods of production and organization of labour and capital who is responsible for the innovation and improvement we see in the market. The person with a business idea who then organizes the necessary resources to execute that idea and turn into an actual product is performing no labour according to Marx – only the workers perform work and therefore deserve the full value of the product and not just their wages. This is clearly an untenable and absurd position and yet if one accepts the claim that capitalism exploits workers this is the implication one must accept.

What is even more perplexing is that if you looks at how Marx defines labour then it does include the activities that the typical capitalist and entrepreneur performs, as he explains, “At the end of every labour-process, we get a result that already existed in the imagination of the labourer at its commencement. He not only effects a change of form in the material on which he works, but he also realises a purpose of his own that gives the law to his modus operandi, and to which he must subordinate his will”. The capitalist must plan, organize and make strategic and tactical decisions in pursuit of actualizing their idea – all attributes necessary for any kind of labour. Marx arbitrarily excludes the labour (in a broad sense) of the capitalists from counting as labour to fit into his ideology of exploitation.

What about the role of demand and supply?

A last set of problems with Marx’s labour theory of value is that it is at odds with the fact that it is the demand and supply of goods that actually changes the value of products. If a new number of oil reserves are discovered, the price of oil would decrease due to the fact there has been an increase in the supply of oil. This means then that the price and value of oil would change even if the amount of labour time that goes into producing extracting and shipping the oil remains the same. The labour theory of value does not actually explain why the values of goods changes with changes in demand and supply.

Marx’s most important criticism of capitalism was built on the exploitation of workers by capitalists. It is a claim that is built on the foundations of his labour theory of value and yet we have seen how baseless and implausible that position is. Wages are incomes earned for the performance of labour and not for the sale of a final product. Wages only come into existence in a capitalistic society with division of labour that allows specialisation of tasks rather than isolated individual production of one’s own final goods. Labour becomes another factor of production subject to market demand and supply. Marx arbitrarily excludes the contribution and work of capitalists and entrepreneurs in bringing about products; and yet it is the ideas, planning, decision making and organizing work of capitalists that ultimately brings about goods and services. Not only that but it does not take much thought to realise that the value of goods can change even if the labour time that goes into producing them stays the same. Therefore the labour of workers is not the source of value of a product which therefore means workers are simply not exploited by capitalists. Marx’s whole ideology was that ending private property or the private ownership of the means of production was essential in ending the exploitation of workers and yet we have seen that the claim of exploitation does not stand up to scrutiny. It is not surprising then that the implementation of communism has practically been disastrous because it rests on a conceptual framework built on sand.

Good reads on Marx

  1. Classical Economics vs. The Exploitation Theory
  2. Marx’s View of the Division of Labor