So, I’ve been listening to (and greatly enjoying!) Mike Duncan’s podcast Revolutions. In particular, I’ve been listening to his series on the Russian Revolution(s). Along the way, Duncan provides a great deal of background on Marxist theory. That makes sense, given the central role Marxism plays in 1917.
Overall, Duncan very skillfully explains Marxism 101, especially thorny terms like ‘means of production,’ and so on. I’d recommend his podcast, along with my own tips for reading Marx.
But Duncan botches Marx’s account of profit and exploitation. And he does so in a way that most people do. This offers a chance to point out a common misconception.
Marx on Profit
Here’s how Duncan explains it: Marx developed the labor theory of value, which says that the root source of value, and therefore profit, is labor. Capitalists pay workers less money for their labor than the labor is worth. The gap between those two things – what capitalists pay workers for their labor and the actual value of the labor – is profit.
That sounds intuitive, right? And I’ve heard many a socialist explaining it exactly like this.
But that’s not what Marx said.
First, a tad pedantically, Marx didn’t invent the labor theory of value. Classical economists did. Marx worked in the tradition of classical economics, notably Ricardo. Marx used the theories of classical economics to point out underlying tensions, fetishisms, and other issues internal to the capitalist system. In fact, it’s an ongoing debate to what extent Marx even accepted the labor theory of value.
Second, Marx assumed in his theories that capitalists and workers engage (in an ideal capitalist system) in an equal exchange of value. The scenario Duncan describes – one where capitalists stiff workers by paying them less for something (i.e., labor) than that thing is worth – is one Marx rules out at the outset of his work. Simply put, Marx does not argue that capitalists pay less for a thing than that thing is worth.
Third, and finally, on Marx’s account, capitalists don’t pay workers for their labor. Capitalists pay workers for their capacity to produce labor, i.e., their labor power. Suppose a worker spends 8 hours making widget, and a capitalist pays them. The capitalist is paying not for 8 hours worth of widgets, but rather for 8 hours of labor power to produce widgets. That’s a key difference, and where Duncan goes astray in explaining Marx.
Why It Matters
OK, so what? Duncan says the capitalist stiffs the worker on their labor. I say the capitalist actually pays for labor power, not labor. Why does it matter?
Here’s why it matters: On Marx’s account, the exchange of 8 hours of labor power for 8 hours’ pay is an equal exchange of value. Duncan reads Marx as claiming that there’s an open swindle, but Marx argues no such thing.
The swindle, in fact, is hidden, not open. The worker’s labor power has a certain value in Marx’s system – the amount needed to reproduce the worker (i.e., to ensure the worker’s survival and social standard of living). The capitalist pays the worker that amount. So, a fair exchange, right? That’s why so many workers believe in the goal of a fair capitalist labor system (i.e., “a fair day’s wage for a fair day’s work“).
Marx argues that those workers are mistaken. In fact, workers are exploited for profit even when the capitalist pays them a ‘fair day’s wage.’ Unlike other things the capitalist might buy, the worker’s labor power has a unique property: it can create new value! And from this new value comes profit.
Here’s how it works on Marx’s model of profit in capitalism: the capitalist pays the worker for their labor power for 8 hours. The capitalist pays the worker the value of that labor power. They do not stiff the worker or underpay them. In exchange, the worker uses that labor power to make widgets.
And Here Comes The Swindle
And the swindle: The value of those widgets is greater than the value of the worker’s labor power. That gap in value – between the worker’s labor power and the widgets produced (a product of an equal exchange of value) – is profit.
And so, what Marx finds so sinister about capitalist profit is its hidden nature. Underneath an exchange that appears fair lies a relationship of exploitation. The worker rents the golden goose to the capitalist at a fair price, but then the capitalist appropriates the goose’s eggs.
An Example
Let’s finish with an example. Suppose I’m a capitalist who wants to hire a worker to make tables. Suppose the worker’s labor power has a value of $10 per hour. And suppose further that the worker can make $100 worth of tables in 8 hours using $10 worth of tools and supplies.
I invest $10 in tools and equipment, pay the worker $80, and receive $100 worth of product, which I sell on the market. Lo and behold, I’ve made $10 in profit. But I did so using only equal exchanges of value. The worker receives the value of their labor power. I did not underpay the worker for their labor power. And I sold the tables for a fair price.
So, there’s no open swindle happening. The swindle, again, is hidden. It comes from the special property of labor to create new value. The capitalist appropriates the product of labor.
