One of the favorite nouns in the lexicon of critics of the free market economy is the noun “exploitation.” Its cognates–the verb “to exploit” and the adjective “exploitative”–are no less popular. Those controlling capital “exploit” men and women with only their labor to sell. Business people “exploit” consumers. Capitalist nations “exploit” lesser developed nations. On and on the sordid story goes.
Half-hearted defenders of a free market economy frequently agree, at least in part, with such criticisms. Yes, an unfettered free market economy would be characterized by such exploitation. But, thanks be, an unfettered market economy has had its day. Extensive governmental regulation of such an economy and government-backed trade unions have tamed the market economy. Such an economy’s unbridled exploitative nature is, mercifully, no more, at least in such more-or-less capitalist nations as Europe, the USA, Australia, and so on.
The strongest version of the claim that the free market necessarily involves exploitation is that of Karl Marx. He has it that the capitalist mode of production generates, by its very nature, the exploited “worker” and the exploiting “capitalist.” In fairness to Marx it must be stressed that he nowhere suggests that the individual capitalist is a villain or moral reprobate. The moral evaluation of individuals is foreign to Marx’s thought. Rather, he thinks in terms of economic classes (even though a precise definition as to what constitutes an economic or social class finally proved impossible to formulate.) Crudely, Marx has it that the set of human beings owning and thus directly or indirectly determining the use of capital are compelled by the ruthless logic of the market to exploit men and women with only their labor to sell. In a sense, the individual “capitalist” is no less a victim of the system than is the allegedly exploited worker. Or so Marx affirmed, contemporary liberation theologians responding to that affirmation with an enthusiastic “Amen!”
Already problems exist. As indicated, Marx paints himself into an impossible corner when attempting to define a social “class.” The contemporary self-styled Marxist thinker, Jon Elster, a professor of political science at the University of Chicago and Research Director of the Institute for Social Research, Oslo, willingly concedes this in his magisterial volume, Making Sense of Marx. Quite apart from the subtle and abstract issues explored by Elster, common sense is affronted by the basic Marxian position. It surely sounds odd to assert that a person scraping a bare living by selling vegetables from a barrow he owns, assisted on a part-time basis by a retired old man delighted to add a few dollars to his welfare check, is a member of the “exploiting” capitalist class whereas the wage-earning general manager of a company in which he owns no shares but who draws a salary of $500,000 a year is an exploited member of the proletariat.
More. When working with aggregates, caution is required. Quite apart from the truism that aggregates conceal more than they reveal, there is always the temptation to commit what A. N. Whitehead called “the fallacy of misplaced concreteness,” treating as actually existing realities “sets” having no existence beyond the aggregator’s own mind.
But enough of preliminary cautions. Why, according to Marx, does the capitalist mode of production force capitalists to “exploit” the proletariat?
Suppose a capitalist owns a factory producing billiard balls. In one hour a hired worker, the market value of whose labor is five dollars per hour, produces twenty billiard balls the market value of which is $100. The raw materials producing these billiard balls involves has a market value of forty dollars. The market value of what is required to repair the wear and tear endured by the capitalist’s machinery and tools comes to five dollars per hour. The capitalist’s costs come to fifty dollars per hour yet the twenty billiard balls produced during that hour sell for $100. The capitalist at no point has “cheated,” his costs being dictated by the market. Yet magically, a profit–a surplus value–of fifty dollars has appeared.
From whence? Not from the raw materials: These still exist, albeit in a transformed state. Not from the machinery: What is needed to replace that machinery in time has been covered by the five dollars per hour depreciation allowance. All that remains is the labor involved. That labor created fifty-five dollars worth of “value” yet receives but five dollars of that total. The “surplus value” of fifty dollars is, Marx alleges, expropriated by the capitalist.
Everything turns upon the thesis that the source of economic value is labor. Sadly for Marxists, the thesis is untenable. Not a few contemporary “revisionist” Marxists concede this; indeed, Thomas Sowell correctly notes that most present-day Western Marxian economists “typically use a set of analytical tools to which Marx contributed nothing.” Typical of such “Marxists” is Jon Elster, cited above, who candidly asserts that Marx’s labor theory of value is “useless at best, harmful and misleading at its not infrequent worst.”
Marx was an economic child of his time. He commenced his economic writings before the so-called marginalist revolution of 1871, a revolution launched simultaneously by Carl Menger, William Stanley Jevons, and Leon Walrus. All three perceived that economic value was not an “objective” quality of a good or service–rather, economic value was a matter of relative comparison between alternatives, each alternative’s “worth” being determined by a valuing-and-choosing individual at the margin–that is, the importance of the next unit of a good or service acquired or surrendered in an act of choice.
The “bottom line” of the marginalist revolution was to put pain to the notion that the economic value of a good or service is an objective quality of that good or service. Rather, the economic value of a good or service signifies a relation between an appraising mind and the good or service appraised. Marx’s labor theory of value was, in a sense, the end-of-the-line reductio ad absurdum of all “objective” cost of production theories of value.
Simply, Marx’s claim that the capitalist mode of production of necessity involves the exploitation by those controlling capital of those with only their labor to sell fails, and fails utterly. As, I repeat, the most interesting of contemporary Marxian thinkers concede.
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