Marx was wrong

by Neil McCray–Co-Editor-in-Chief

I’ve been thinking about Karl Marx’s arguments about the exploitation of the proletariat by the bourgeois a lot lately. I have a few problems with his arguments, and I finally decided to write out the arguments so I can see how they all work together.

Marx’s argument that the proletariat is exploited by the bourgeois is based on one primary argument, represented by his statement that “[t]he worker becomes poorer the more wealth he produces and the more his production increases in power and extent.”

This statement implies the following:

1) Value is a function of labor (because wealth is produced by the worker as he works).

2) The more workers make, the more they lose.

Marx’s position that wealth is produced is central to his position about how the value of a product is determined. This theory is called the “labor theory” of value. It posits that the value of a product is determined not by its function or whether it meets the demand of consumers, but by the amount of labor that is put into its production. I will demonstrate that this is key to Marx’s position now.

Marx argues that the bourgeois exploit the proletariat. I posit that the best interpretation of exploitation is that there is an unequal exchange in which one party benefits at the expense of the other. If a resource were provided as an even exchange for some other resource between the proletariat and the bourgeois, then it appears counterintuitive to suggest that there is exploitation going on. So, my interpretation seems to make sense. If we accept that exploitation means unequal exchange where one party benefits at the expense of another, and that the bourgeois exploit the proletariat, then we have to accept that the bourgeois are taking more from the proletariat than they are giving in return for proletariat labor.

Marx argues that the primary driving force of the bourgeois in capitalism is profit motive. This is the second part of his argument of exploitation. In order to profit, capitalists must pay workers less than the value of their labor (and the surplus value that is not returned to the workers is the profit the bourgeois enjoy).

Marx’s position regarding #2, as mentioned above, can best be explained as the belief that wealth is zero sum. When he says that the more workers make, the poorer they get, he is arguing that because workers are paid less than the value of their work, the more they work the more value they have lost. This can be illustrated simply by the following example:

A worker produces 10 units of value per product he makes. If we assume that the worker is working for a bourgeois who is driven by profit motive, then we accept that the bourgeois will pay the worker less than the value of his labor. So, let’s say the worker gets 9 units of pay for every 10 units of value he produces. If he produces 1 product, he has lost 1 unit of value. For each further product he produces, he loses 1 unit of value. So, the more he works, the more he loses. The same applies in the opposite direction: for each product the worker produces, the bourgeois has a profit of 1 unit of value.

This example is an illustration of a further implication of Marx’s position: if value is objectively determined as a function of labor, then in order for one party to profit, another must be exploited. So, if value is objective, then value is zero-sum.

That is why Marx’s position about worker exploitation is wrong. Value is not objectively determined, and value is not zero-sum. If value is not objectively determined, then one person can profit without exploiting another person. I’ll show why value is subjective, first by appealing to market value as a function of supply and demand, and second by appealing to rational choice theory.

I’ll start with an example. Let’s think of a loaf of bread. Let’s say $5 worth of labor has gone into that loaf of bread. So, if Marx is right, then the loaf of bread is worth $5 objectively. Now let’s imagine two different people, each of whom have the opportunity to buy that bread. Each person has $10. Let’s say X is a person who just finished eating a three-course meal, has food at home and is not hungry right now. Y, however, is a person who has not eaten for days, has no food at home and is desperately hungry.

For X, the bread is being sold for $4 (below the bread’s objective value). X has no need of the bread and no want of it. X already has bread and other food at home. X can choose to buy the bread or not. If X were going to buy the bread, then X would probably not offer to pay very much—the $4 X could spend on bread could go to other things X lacks. X is probably unwilling to pay $4 to get the bread. So, it appears that the bread is not worth $4 to X. Regardless of the work that went into creating the bread, for X, there is no demand for it and ample supply. So, the bread is worth less than what Marx would say it is.

For Y, the bread is being sold for $10 (above the bread’s objective value). Y has need of the bread and wants it desperately. Y has no bread or food at home and no other access to food besides this (per Marx) $5 loaf of bread. Y can choose to buy the bread or not. If Y were going to buy the bread, then Y would probably be willing to offer the full $10. So, the bread is worth $10 to Y. Regardless of the work that went into creating the bread, for Y there is high demand and low supply. So, the bread is worth more than what Marx would say it is.

These examples illustrate that value is subjectively determined based on need and want, as opposed to objectively determined based on labor.

My second argument is based on rational choice theory, which posits that actors will act in ways that they think make them as well off as possible. So, if an actor has to choose between two choices, they will pick the one that they perceive as best for them. If there is no benefit to an action, and it does not make the actor any better off, then the actor has no reason for taking that action.

So, under rational choice theory, if an actor takes an action, then they must think that this action makes them better off than they would otherwise be absent that action. Under this framework, let’s consider the example of a trade between two individuals:

Person Q has a cheeseburger. Person Z has $5. Q wants Z’s $5, and Z wants Q’s cheeseburger. They trade. Under rational choice theory, they only traded because they perceive the trade as being better for them than not trading. This perception, that each is better off as a result of the trade, is the creation of value. If Q thought that they would be losing out by trading their cheeseburger for Z’s $5, then they would not have gone through with the trade. If Z thought that they would be losing out by trading their $5 for Q’s cheeseburger, then Z would not have gone through with the trade. So, each thinks they are better off post-trade than they were before. If both actors have benefited from their trade, then value has been created. So, as a result of the trade, there is more value in the world than there was before the trade occurred.

If you buy the arguments I’ve provided, there are a few implications. The first is that value is subjective. The second is that value is not zero-sum. So, things can be worth more to one person than another, and when people trade their resources for other resources they’d prefer to have, value is created as a result of the trade. If you accept that, then Marx’s original argument, that the bourgeois exploit the proletariat as a result of the labor theory of value, is flawed.

Instead of the two implications I draw from his quoted statement, we see that:

1) Value is a function of subjective desires rather than labor.

2) The more workers make, the more they gain (because they are trading their work as a resource in return for money, which they necessarily see as more valuable than the amount of labor they provide).

Credit to Dr. Howie Baetjer of Towson University for giving a lecture that inspired parts of this article.

Released in print May 25, 2012.



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