The Labor Theory of Value,
or, Why Exploitation is Inevitable in a Capitalist System
Marx had an economic argument as to why exploitation and revolution were inevitable in a capitalistic market. It was based on what he called the Labor Theory of Value, which says this:
The value of any commodity, on the current market, is judged by how much a profit it can yield on the market. To fully evaluate the humanistic side of this, Marx said, you must also take into account the human cost of producing these commodities. The value, then, is based on the average amount of labor put into the product. The term value is not the same as price. Prices are based on the basis of demand and the fluctation of the market. Though products are sold on price, the value underlines the price. In capitalist society, a laborer sells his labor. Every commodity has a value, based on that labor. Ideas, as well, can be a commodity, such as the ideas a professor sells.
What is the value of labor as a commodity? Theoretically, the value of labor is determined by the cost of subsistence plus the cost of training. Under conditions of free trade, where capitalists want to suppress wages to increase profits, the value of labor is almost equal to the cost of subsistence.
The model of production cost is C+V+M, where C=Constant Capital (the money invested in machinery and further technological advancements), V=Variable Capital (the cost of worker's wages and training), and M=Mass of Surplus Value (the mass of goods produced that can be sold on the market above what is necessary to satisfy C and V and yield a profit).
Only labor is a source of value, says Marx. Machines themselves are products of former labor. Labor is the only thing valuable to a capitalist. Surplus value can only be created if the worker works more than is needed to reproduce the cost of his training and constant capital and his own physical reproduction. Surplus value, therefore, must be created by some quanitity of labor that is above the necessary working time (C+V) to prevent loss of capital: in the first three hours of the day, a worker must produce enough for a capitalist to invest in C, and in the next three hours enough for his own subsistence, and then above that to create a mass of surplus goods that will allow a capitalist to reap a profit.
Exploitation is inevitable in the capitalist economic system because a certain part of the day must be devoted solely to the capitalists. The rate of exploitation is defined as R=M/V. This is the relationship of profit to wages. Therefore, there is an objective situation for the exploitation of workers.
Every capitalist must maximize his or her own profit. How can he augment these profits? By either reducing wages or making the worker work longer hours. You can, therefore, increase the rate of exploitation. The upside is you get higher returns. The downside is that it provokes union action.
You can also increase profits by increasing efficiency. How does one do this? Various kinds of technology effiency measures, and investment in technological innovations. You can increase productivity by replacing human labor with machines. What will happen to competitors in an unrestrained system? They will also do the same, trying to increase productivity, to the points where they are more efficient and can push you out of the market, competing for the same clientele.
Where does this process of constant underpricing have to stop? When the price of the product falls so low the return is very small. This reduction of profit is called the tendency of the falling rate of profit. In addition to that, you will also have the problem of displacing mass numbers of workers because you are replacing them with machines. Capitalism therefore requires an unemployed pool of workers. The pool is called the reserve army of labor-- permanently available for hiring because of their desperation to get a job. If capitalists continue displacing and competing, in the end the unemployed will grow, and capitalists will face a social problem. Moreover, because of greater unemployment, these people will be willing to work for lower wages, and this will repress standards of living. Finally, the "big fish" will eat the "small fish," meaning small businesspersons and their employees will be the losers in the long run, and will lose their customers. The creation of this permanent army of surplus labor is built up by those that fall from the small business in competition.
Eventually there will be a conflict between the large number of those that fall out and the smaller business class, or the persons who own the means and relations of production. This itself is the mechanism of social revolution. Because of the cost of goods, the lack of money within the majority army of surplus labor, there will be a crisis of overproduction (overstock).
Economically, Marx says, capitalism is extremely rational. But, he says, the human cost is immense. Eventually it will be too great and revolution will occur.