Karl Marx claimed that, to realize their profits, capitalists must exploit workers. However, by his definition of the word, every society – capitalist or not – depends upon exploitation. According to Marx, workers are exploited when they do not keep or control all the value created by their own labor. The problem is that, if a laborer received the full value of his product, why would anyone buy it? The only reason for buying something is for the value it provides, but if the price is so high that customers receive no net gain from its purchase, no purchase will take place. If no one buys anything, laborers will be left with products that they can neither use nor sell, and production will be of no benefit to anyone. Clearly, no society can survive under such conditions.
Marx tried to deal with this and other problems inherent in the Labor Theory of Value (LTV) by theorizing two different values:
Use value: The benefits – as subjectively determined by a product’s user – realized by utilizing the product.
Exchange value: The amount of socially necessary labor that can be obtained by exchanging a product (or service) or for another product, where “socially necessary labor” is the average amount of time that the average laborer takes to produce a given socially useful product. Exchange value is objectively determined by the amount of socially necessary labor contained in a product.
Using these different definitions of value, Marx could argue that the laborer could receive the full exchange value of his product while still leaving surplus use value for the purchaser.
But his theory of an exchange value that can be objectively determined implies that nearly any exchange must result in exploitation. In the exchange of any two goods, X and Y, there are only three possibilities:
- X and Y contain the same amount of socially necessary labor and, therefore, have the same exchange values.
- X contains more socially necessary labor than Y.
- Y contains more socially necessary labor than X.
In cases 2 and 3, no exchange will occur because no one will offer a good in exchange for one of lesser value. But neither would an exchange occur in case 1. Who would pay the transaction costs of taking goods to market to exchange them for goods that are of no more value? If exchange offers no gain, there is no point in making an exchange. Marx, perhaps recognizing that exchange must, according to his theories, entail exploitation, proposed a society in which exchange is prohibited.
In Marx’s utopia, factories would produce for use rather than for exchange. In practice, finished goods would be sent to warehouses from which they would be distributed to consumers. Workers would, in Marx’s formulation, produce according to their abilities and receive according to their needs. In practice, however, workers are far more likely to produce according to a quota set by central planners and receive according to the planners’ assessment of their needs.
Even assuming an ideal distribution of goods, though, the only way in which a worker can receive the full exchange value of his production is in the unlikely event that his needs exactly match his abilities. Most workers will either produce more than they receive or receive more than they produce. The former are exploited according to Marx’s own definition of the word. Moreover, if the society is to survive, most workers will have to produce more than they consume and, therefore, most must be exploited.
On the other hand, if exchange is prohibited, then the exchange value of any good or service is, legally, zero. Therefore, by definition, anything that a worker receives exceeds the exchange value of that which he produces. Problem solved – at least to the satisfaction of a Marxist theoretician. One wonders whether such verbal legerdemain will satisfy a laborer equally well.
Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource.
