Exploitation of labour

In the Marxist critique of political economy, exploiters appropriate another's surplus labour, which is the amount of labour exceeding what is necessary for the reproduction of a worker's labour power and basic living conditions. In other terms, this entails the worker being able to maintain living conditions sufficient to be able to continue work. Marx does not attempt to tie this solely to capitalist institutions as he notes how historically, there are accounts of this appropriation of surplus labour in institutions with forced labour, like those based on slavery and feudal societies. However, the difference he emphasizes is the fact that when this appropriation of surplus labour occurs in societies like capitalist ones, it is occurring in institutions having abolished forced labour and resting on free labour.[2] This comes from Marx's labour theory of value which means that, for any commodity, the price (or wage) of labor power is determined by its cost of production - namely, the quantity of socially necessary labor time required to produce it.[1]

In a capitalist economy, workers are paid according to this value and value is the source of all wealth. Value is determined by a good's particular utility for an actor and if the good results from human activity, it must be understood as a product of concrete labour, qualitatively defined labour. Capitalists are able to purchase labour power from the workers, who can only bring their own labour power in the market. Once capitalists are able to pay the worker less than the value produced by their labour, surplus labour forms and this results in the capitalists' profits. This is what Marx meant by "surplus value", which he saw as "an exact expression for the degree of exploitation of labor-power by capital, or of the laborer by the capitalist".[9] This profit is used to pay for overhead and personal consumption by the capitalist, but was most importantly used to accelerate growth and thus promote a greater system of exploitation.[2]

The degree of exploitation of labour power is dictated by the rate of surplus value as the proportion between surplus value/product and necessary value/product. The surplus value/product is the materialized surplus labour or surplus labour time while the necessary value/product is materialized necessary labour in regard to workers, like the reproduction of the labour power.[5] Marx called the rate of surplus value an "exact expression of the degree of exploitation of labour power by capital".[10]

Many capitalist critics have pointed out that Marx assumes that capital owners contribute nothing to the process of production. They suggest that Marx should have allowed for two things; namely, permit a fair profit on the risk of capital investment and allow for the efforts of management be paid their due.

David Ramsay Steele argues that marginal productivity theory renders Marx's theory of exploitation untenable. According to this theoretical framework and assuming competitive market conditions, a worker's compensation is determined by his or her contribution to marginal output. Similarly, owners of machines and real estate are compensated according to the marginal productivity of their capital's contribution to marginal output. However, Steele notes that this does not in any way touch the ethical argument of socialists who acknowledge non-labour contributions to marginal output, but contend that it is illegitimate for a class of passive owners to receive an unearned income from ownership of capital and land.[11]

Meghnad Desai, Baron Desai observed that there is also the prospect of surplus value arising from sources other than labour and a classic given example is winemaking. When grapes are harvested and crushed, labour is used. However, when yeast is added and the grape juice is left to ferment in order to get wine, the value of wine exceeds that of the grapes significantly, yet labour contributes nothing to the extra value. Marx had ignored capital inputs due to placing them all together in constant capital—translating the wear and tear of capital in production in terms of its labour value. Yet examples such as this demonstrated that value and surplus value could come from somewhere other than labour.[12]

The theory has been opposed by Eugen Böhm von Bawerk, among others. In History and Critique of Interest Theories (1884), he argues that capitalists do not exploit their workers, as they actually help employees by providing them with an income well in advance of the revenue from the goods they produced, stating: "Labor cannot increase its share at the expense of capital". In particular, he argues that the theory of exploitation ignores the dimension of time in production. From this criticism, it follows that, according to Böhm-Bawerk, the whole value of a product is not produced by the worker, but that labour can only be paid at the present value of any foreseeable output.[13]

John Roemer studied and criticized Marx's theory by putting forth a model to deal with exploitation in all modes of production, hoping to lay the foundations for an analysis of the laws of motion of socialism. In his works published in the 1980s, Roemer posits a model of exploitation based upon unequal ownership of human (physical labour skills) and non-human property (land and means of production). He states that this model of property rights has great superiority over the conventional surplus labour model of exploitation, therefore rejecting the labour theory of value.[6] In his attempt to put forward a theory of exploitation that also includes feudal, capitalist and socialist modes of production, he defines exploitation in each of the modes in terms of property rights. Roemer rejects the labour theory of value because he sees that exploitation can exist in the absence of employment relations, like in a subsistence economy, therefore backing the model of exploitation that is based on property rights. He tests his theory of exploitation using game theory to construct contingently feasible alternative states where the exploited agents could improve their welfare by withdrawing with their share of society's alienable and inalienable assets.[6] Feudal, capitalist and socialist exploitation all come from the theory of exploitation on the basis of inequitable distribution of property rights. There has been a range of agreement and disagreement from various economists, neo-classical economists favoring the model the most.

Some theorists criticize Roemer for his entire rejection of the labour theory of value and the surplus labour approach to exploitation, for they were the central aspects of Marxist thought in regard to exploitation.[14] Others criticize his commitment to a specifically liberal as opposed to a Marxist account of the wrongs of exploitation.[15]

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Many assume that liberalism intrinsically lacks any adequate theory of exploitation because its phenomenon commits itself only to the primacy of personal rights and liberties and to individual choice as the basic explanatory datum. Hillel Steiner provided an argument to refute the claim that liberalism cannot supply an adequate theory of exploitation.[16] He discusses interpersonal transfers and how there are three types: donation, exchange and theft. Exchange is the only of the three that consists of a voluntary bilateral transfer, where the beneficiary receives something at a value greater than zero on the shared scale of value, although at times there can be ambiguity between more complex types of transfer. He describes the three dimensions of transfers as either unilateral/bilateral, voluntary/involuntary and equal/unequal. Despite these types of transfers being able to distinguish the differences in the four types of transfers, it is not enough to provide a differentiating characterization of exploitation. Unlike theft, an exploitative transfer is bilateral and the items are transferred voluntarily at both unequal and greater-than-zero value. The difference between a benefit and exploitation despite their various shared features is a difference between their counterfactual presuppositions, meaning that in an exploitation there is a voluntary bilateral transfer of unequally valued items because the possessors of both items would voluntarily make the transfer if the items to be transferred were of equal value, but in a benefit the possessor of the higher-value item would not voluntarily make the transfer if the items were at equal value. Put simply, the exploitation can be converted to an exchange: both exploiters and exploited would voluntarily become exchangers when benefactors would not.

In an exploitation both transfers are voluntary, but part of one of the two transfers is unnecessary. The circumstances that bring out exploitation are not the same as what brings about exploitative transfers. Exploitative circumstance is due to the factors other than what motivates individuals to engage in nonaltruistic bilateral transfers (exchanges and exploitations) as they are not sufficient circumstances to bring about exploitative transfers.

To further explain the occurrence of exploitative circumstances certain generalizations about social relations must be included to supply generalizations about social institutions. He says that 'if (i) certain things are true of the institutions within which interpersonal transfers occur and (ii) at least some of these transfers are nonaltruistic bilateral ones, then at least some of these transfers are exploitative.[17] Steiner looks at the institutional conditions of exploitation and finds that in general exploitation is considered unjust and to understand why it is necessary to look at the concept of a right, an inviolable domain of practical choice and the way rights are established to form social institutions. Institutional exploitation can be illustrated by schematized forms of exploitation to reach two points:

1. Despite the mode of deprivation in exploitation, it is not the same as the mode involved in a violation of rights and it does result from such violations and the two deprivations may be of the same value.
2. Rights violation (theft) is a bilateral relation, but exploitation is trilateral one. There are at least three persons needed for exploitation.

On a liberal view, exploitation can be described as a quadrilateral relation between four relevantly distinct parties: the state, the exploited, the exploiter and those who suffer rights violations. However, it can be argued that the state's interests with the exploiters action can be viewed as unimpeachable because you cannot imply that the exploiter would ever withhold consent from exploiting due to altruistic concerns. So this trilateral conception of exploitation identifies exploited, exploiters and sufferers of rights violations.

In terms of ridding exploitation, the standard liberal view holds that a regime of laissez-faire is a necessary condition. Natural rights thinkers Henry George and Herbert Spencer reject this view and claim that property rights belong to everyone, i.e. that all land to be valid must belong to everyone. Their argument aims to show that traditional liberalism is mistaken in holding that nonintervention in commerce is the key to non exploitation and they argue it is necessary, but not sufficient.

The classical liberal Adam Smith described the exploitation of labour by businessmen, who work together to extract as much wealth as possible out of their workers, thusly:

What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.[18]

The majority of neoclassical economists only would view exploitation existing as an abstract deduction of the classic school and of Ricardo's theory of surplus-value.[5] However, in some neoclassical economic theories exploitation is defined by the unequal marginal productivity of workers and wages, such that wages are lower. Exploitation is sometimes viewed to occur when a necessary agent of production receives less wages than its marginal product.[19] Neoclassical theorists also identify the need for some type of redistribution of income to the poor, disabled, to the farmers and peasants, or whatever socially alienated group from the social welfare function. However, it is not true that neoclassical economists would accept the marginal productivity theory of just income as a general principle like other theorists do when addressing exploitation. The general neoclassical view sees that all factors can be simultaneously rewarded according to their marginal productivity: this means that factors of production should be awarded according to their marginal productivity as well, Euler's theorem for homogeneous function of the first order proves this:

f(K,L)= f_K(K,L)K+f_L(K,L)L

The production function where K is capital and L is labour. Neoclassical theory requires that f be continuously differentiable in both variables and that there are constant returns to scale. If there are constant returns to scale, there will be perfect equilibrium if both capital and labour are rewarded according to their marginal products, exactly exhausting the total product.

The primary concept is that there is exploitation towards a factor of production, if it receives less than its marginal product. Exploitation can only occur in imperfect capitalism due to imperfect competition, with the neoclassical notion of productivity wages there is little to no exploitation in the economy.[20] This blames monopoly in the product market, monopsony in the labour market and cartellization as the main causes for exploitation of workers.