I ended my article final week with a rash assertion. Marx says that capitalists exploit employees, and I countered that this declare depends upon the false labor idea of worth. It’s vital to keep in mind that when Marx talks about exploitation, he has a technical sense of the idea in thoughts, quite than the favored sense, during which “exploitation” means unfair remedy. To say that capitalists exploit employees on this sense needn’t relaxation on the labor idea of worth.
The technical sense arises from a deep query that Marx asks: Why do capitalists earn income? He doesn’t imply right here “revenue” as Austrian economists use the time period however quite what we’d name “curiosity.” Marx’s query, then, is: Why does capital earn curiosity? The capitalist begins out with cash, which he invests in a enterprise. Within the manufacturing means of the enterprise, his cash turns into commodities. These he sells for cash, and he winds up with more cash than he had initially of the method. (That is the well-known M—C—M’ method, the place M is cash, C is commodities, and M’ exceeds M.)
To specify Marx’s query, what he desires to know is how it’s potential, provided that in equilibrium all commodities trade at their labor values, that the capitalist finally ends up with a rise in cash. To reiterate, Marx is speaking about equilibrium. Typically, capitalists can make the most of fluctuations in provide and demand to earn greater than the going price of return, and different capitalists earn lower than this; however Marx’s query is why there’s a price of return on capital in any respect.
His reply is ingenious. He says that employees promote their labor energy, that’s, their capability to supply commodities as soon as given entry to the technique of manufacturing, to the capitalists. The employee is placing himself on the disposal of the capitalist for a sure variety of hours every day. As a result of every commodity sells at its labor worth, and labor energy is a commodity, a brand new query arises: What’s the labor worth of labor energy? Marx’s reply is that it’s the value of labor, i.e., the prices of the products the laborer wants for subsistence and, Marx provides, copy. That is in flip decided by the labor values of those items. Suppose the price of labor, understood on this sense, is eight hours per day, however the employee has contracted to work for the capitalist for ten hours per day. The additional two hours are “surplus worth” and are the supply of curiosity. In Marx’s account, employees are usually not paid under their worth, as measured by the labor idea of worth, however the achieve to the capitalist comes from the employees’ further hours; and that is Marx’s technical sense of “exploitation.”
As Wolff realizes, Marx’s account of revenue is mistaken. I received’t go into the main points of Wolff’s mathematical argument for this, however he concludes, “I proved an especially vital theorem that reveals that Marx was mistaken to impute the exploitative capability of capitalism to the labor/labor energy distinction.” (Sadly, he later found that another person had proved the identical theorem two years earlier than he did.)
Regardless of his proof, Wolff stays satisfied that Marx was proper. Capitalists do exploit employees and that is crucial truth required to grasp capitalism. He thinks that the place Marx failed, he has succeeded; he has a brand new proof of exploitation.
His proof is in essence the next. Within the capitalist system, all of the components of manufacturing have a revenue markup. If a capitalist earns under the going price of return, he can money out his funding and reinvest in one thing that pays higher. However employees can’t do that. They personal nothing moreover their very own our bodies, and so they can’t detach themselves from these. They can not, then, money out their our bodies and make investments them extra productively elsewhere if they’re incomes under the revenue markup for labor. They thus earn under what the equilibrium worth of labor could be if they might make this swap, and this corresponds to the additional income that capitalists make. On this approach, employees are exploited.
Wolff explains his argument on this approach:
Now, in a free market, a aggressive market, a capitalist market—so all of the classical Political Economists agreed—there’s a single ruling price of revenue which is adjusted and controlled by the free decisions that capitalists make to maneuver their capital from sector to sector in pursuit of the biggest return on their funding. If a capitalist who owns a manufacturing facility that weaves woolen fabric observes that capitalists within the furnishings enterprise make the next price of return (and, allow us to recall, that within the classical faculty good data is assumed), then over time and with some adjustment that capitalist can money in his funding within the furnishings manufacturing facility and shift it with to a fabric manufacturing facility. To make certain, this isn’t a swap that may be made in a single day for there’s a downside with what is named “fastened capital,” however over time and roughly bumpily, the capital will get transferred to the brand new sphere of manufacturing. This has the double impact of accelerating the quantity of woolen fabric obtainable available in the market and reducing the quantity of furnishings obtainable on the market. Modifications within the relative dimension of demand and provide alter the costs at which these items promote which in flip reduces considerably the speed of return within the fabric business and will increase it within the furnishings business. So by an unceasing collection of such particular person capitalist choices and actions the revenue price is perpetually equilibrated. That is the acquainted image painted by Ricardo and his lesser contemporaries. The system of worth equations representing the operations of a capitalist economic system gives a mathematical mannequin for this story of what goes on within the regular functioning of capitalism…. Ah, however the labor producers, not like the furnishings producers and the fabric producers, can’t shift their capital to a unique line of manufacturing once they observe that it pays the next price of return, for his or her capital is nothing apart from their our bodies and the one approach they’ll money of their funding of their our bodies is by… cashing it in, which is to say dying. That is nothing in opposition to capitalism, in fact. Capitalism locations no authorized or different constraint on the alternatives of the employees. It’s simply an unlucky metaphysical accident, maybe laid on the door of Descartes if somebody have to be blamed, that the employees’ physique and soul are inseparable this aspect of the grave…. Suppose we had been to write down a system of equations for an economic system during which the employees genuinely are handled as free petty commodity producers of the commodity labor. And suppose we had been to precise mathematically this unlucky constraint on the employees’ capability to maneuver their capital into different strains of manufacturing, thus in a fashion of talking—and solely in a fashion of talking—constructing the ironic remedy of capitalism as a free market system into the equations. Effectively, due to the unfreedom of these condemned to supply labor, the speed of return in that sector might not be equal to the speed of return within the different sectors and so it have to be represented by a unique variable…. With out troubling you overly with the arithmetic, and, I’d say, hardly surprisingly, it seems that the full revenue appropriated within the system by all the capitalists precisely equals the revenue forgone by the employees on their capital—their our bodies—by the truth that they can not shift that capital about in pursuit of a greater price of return and therefore are pressured to promote their output under what would in any other case be its equilibrium worth.
I don’t doubt the main points of Wolff’s arithmetic; his competence in such issues far exceeds my very own. However he has not given us a adequate purpose to just accept the labor idea of worth as an excellent account of both wages or curiosity. Marx’s account of curiosity fails, however a minimum of he asks the proper query: Why is there a price of curiosity? Wolff doesn’t ask this query however simply postulates a revenue markup for all components; he then inquires why employees earn lower than this markup. Austrian economics, against this, tries to account for the costs of all of the components of manufacturing. It’s straightforward to imagine what you need to be attempting to clarify, however, as Bertrand Russell way back mentioned, “The tactic of ‘postulating’ what we would like has many benefits; they’re the identical as some great benefits of theft over sincere toil.”