One of the major questions for 19th century
economists was “what determines the value of a product?”. Karl Marx followed most other economists of his day in accepting the labor
theory of value. In this theory, the value of a
product was determined by the socially necessary labor time to
produce it. This was to include both current labor and past
labor (that is, the labor that went into building the machines that made
the product). Only “socially necessary” labor time would
determine value; one could not increase the value of one’s product by adding
unnecessary labor. Skilled labor was counted as a multiple of
unskilled labor in determining value.
Marx then applied this theory to the
question: “what determines the value of the labor power?”. His answer
followed logically from the labor theory of value: the value of the
labor power
was determined by the socially necessary labor time to produce it. This, to
Marx, meant subsistence. Marx never defined exactly what he
meant by subsistence. It would seem that he viewed subsistence
as determined in relation to the society of the time. Subsistence could
mean more than basic physical subsistence. (Thus, subsistence
living would be higher in the modern United
States than in Ethiopia.) Yet, it
certainly seems that Marx intended subsistence to involve quite a low
standard of living.
Marx followed other economists of the day in viewing
population growth as the force that
would keep workers’ wages at the subsistence level. If
the demand for workers increased, wages would rise. Workers
were expected to respond to the higher wages by having more children (or
at least having more children survive). This increased number of
workers would drive the wages back down to subsistence. This
idea was first stated by David Ricardo and is known as the “iron law
of wages”.
According to Marx, under
capitalism, workers were forced to sell their labor power to
capitalists in order to be able to earn a
living. This put them in a weak bargaining position.
Capitalists only had to pay workers subsistence
wages. But in a days’ work, workers would
produce a value greater than their subsistence. This
extra value was then taken by the capitalist.
Marx called this extra value “surplus value”.
The amount of surplus value as a percent of the wage paid to the workers
Marx called the rate of exploitation. So if a worker is paid
$8 per hour but produces goods worth $16 per hour, the extra $8 is surplus
value and is taken from the worker. The rate of exploitation is $8 divided
by $8, or 100%. The profits of the capitalists are produced by
the workers and then taken from them by the capitalists as exploitation of
their position of power! The implication is that the capitalists have done
nothing to earn the profits! Today, in Europe and even in the United States,
it is not uncommon to see profits (dividends, capital gains) labeled
as “unearned income”!
For more on Karl Marx and Marxism:
Marx's Dialectical Approach and Materialist Interpretation of History
Marx's Class Struggle
Marx on alienation and freedom
Marx on The Reserve Army of Labor / Unemployed
Marx's Law of Increasing Concentration of Capital
Marx on Contradictions of Capitalism
Marx on the Crises of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology
Marx's Class Struggle
Marx on alienation and freedom
Marx on The Reserve Army of Labor / Unemployed
Marx's Law of Increasing Concentration of Capital
Marx on Contradictions of Capitalism
Marx on the Crises of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology